Macro Matters December 2023

(Source: Merlea Macro Matters)

Tis the season for financial reflection, as we unwrap the present state of markets.


Exploring the recent dynamics in the financial markets reveals a compelling narrative. The Federal Reserve’s decision to halt interest rate hikes and signs of slowing inflation have triggered the most robust performance in bond markets since the 1980s. This development has notably benefited bond investors who were anticipating a challenging third year.

The positive momentum extends beyond bonds, with November witnessing strength across various sectors, including stocks, credit, and emerging markets. This widespread uptrend characterises what can be aptly described as an “everything rally.”

However, amidst this optimistic atmosphere, Chinese stocks stand as outliers due to persistent concerns about the country’s economic recovery. These worries were further compounded by an unexpected contraction in China’s manufacturing and services sectors in November.

As we approach the year-end, optimism pervades the financial markets, marking a significant shift from the prevailing pessimism in December of the previous year. Despite this positive shift, it is essential to temper our enthusiasm and maintain a realistic perspective.

While steering clear of doomsday predictions, it is crucial to address the prevailing wave of optimism in the consensus forecasts. Specifically, the S&P500 seems poised for a corrective pullback in the upcoming months. Valuations, which paint an optimistic picture, hinge on everything going seamlessly over the next six months. Expectations have soared to unprecedented levels, with the market’s elevated price-to-earnings (PE) ratio leaving little room for error.

In our analysis, we anticipate a corrective pullback, with the S&P500 potentially retracing to 4400 over the next few weeks. However, a deeper correction could be on the horizon if the winds of change intensify, particularly with potential earnings revisions taking a dip in December.

This recent market rally is like a Christmas miracle which has drawn its strength a unique blend of factors, including a Goldilocks scenario for economic data, declining oil prices, lower yields, and an influx of cash into the markets. Despite revelling in this financial feast, it is crucial to acknowledge the potential challenges that lie ahead.

Firstly, the Goldilocks data may not be a permanent fixture, and the ideal economic conditions could fade. Secondly, yields teeter on the brink of facing significant challenges at debt auctions, raising doubts about who will step up to the plate at current levels. Lastly, OPEC is unlikely to remain on the sidelines, and potential actions may be witnessed if oil prices continue to maintain their ground.

As we navigate these economic waters, maintaining a watchful eye on the changing tide is imperative. Approaching the coming year with a balanced perspective is key, as, in the world of finance, a touch of caution can serve as the compass guiding us through uncertain terrain. May your portfolios be merry and bright.


Government bond valuations present an attractive opportunity, with U.S., UK, and German bonds offering reasonable value. The potential for a rally exists as investor confidence grows, considering central banks’ completion of tightening, the peak of inflation, and economic slowdowns. The U.S. yield curve may steepen in the coming months, particularly as the spread between 2-year and 10-year bond yields nears extremes.

Notably, Japan remains an exception with a 10-year yield still at around 70 basis points, reflecting its comparatively expensive position. Markets, anticipating an economic downturn, now look beyond it to potential declines in interest rates as central banks step in to support the economy.

The deeply inverted yield curve over the past year and a half has been a key indicator of this anticipation. Major central banks, including the US Federal Reserve and Bank of Canada, seem to have reached the peak of their rate-hiking cycles. As we enter the late stage of the business cycle, central banks have paused rate hikes but have not yet eased policy.

Historically, this transitional period, marked by a flat or inverted yield curve, signals rising unemployment, falling economic activity, and decreasing inflation. Notably, the two-year to 10-year US Treasury yield curve has transitioned from a -93-basis points inversion in July to just -20 bps at the end of October. Bond returns have faced weakness for an unprecedented third straight year, driven by a significant increase in yields, now back at long-run averages.

In October, US 10-year yields crossed above 5%, with real yields at 2.1%, offering the most attractive levels in over 15 years. This compares favourably to earnings yields on equities. The FTSE Universe Bond Index in Canada and the Bloomberg US Aggregate Bond Index yielded 5.1% and 6.5%, respectively, at the end of October, marking a substantial increase from levels a few years ago.

As data, particularly in the US labour market, suggests a move back towards balanced demand and supply conditions, we observe a rise in continuing jobless claims, indicating potential challenges in finding jobs. Given these factors, our approach is increasingly cautious on risk assets, including mid and small cap stocks, and more positive about bonds as the year concludes.

Fixed-income portfolios should be strategically positioning to benefit from the yield curve moving toward normalisation, while maintaining an underweight stance on credit, anticipating wider spreads. As we enter the late cycle phase, the high level of interest rates dominates both the macroeconomic and investing environments. We remain vigilant on growing risks as the year closes out.

Listed Property

Despite sensitivity to interest rates, the A-REIT market faces pressure due to heightened uncertainty surrounding short-term cash rates and 10-year Government bond yields.

Amid these uncertainties surrounding commercial property valuations, select ASX real estate shares may present lucrative opportunities. These opportunities arise as beaten-down assets with high occupancy, continued rental profit, and robust distributions are considered attractive. Despite expectations of declining property valuations on balance sheets over the next 12 months, certain segments of the commercial rental sector could yield solid returns due to low supply and favourable inflation.

Australia’s rising cash rates in 2023 have created stress for funds, prompting a departure from rental income-dependent strategies. Higher financing costs, somewhat offset by increased rental income, have led funds to actively reduce gearing, resulting in asset sales at significant discounts. This urgency, combined with unfavourable valuations, offers opportunities for stronger players to acquire assets at substantial discounts. Notably, office spaces in Sydney have been sold at discounts of up to 17% from December 2022 valuations.

Reflecting the robustness of the A-REIT sector, basic property fundamentals showcase a WALE of 5.5 years and an overall average occupancy level of 98.3%. The sector’s capital structure remains sturdy with a look-through gearing level of 25%, an interest coverage ratio of 5.0x (excluding large fund managers), and a debt maturity of 4.8 years with 76% hedging.

Listed office and retail landlords’ shares trading at 25% book value is just reasons why A-REITs could be primed for a comeback in 2024.

In 2024 we are expecting a comeback in public real estate sector M&A activity. Strategic scrip mergers between publicly listed REITs are anticipated to feature prominently as larger players seek consolidation, diversification, and scale for future economic shifts. This trend, already observed in the US-listed REIT market, is characterised by four deals totalling $24.3 billion in transaction value in the second quarter of 2023.

The likelihood of public-to-public deals is emphasised, particularly given the limited access to debt at favourable terms in an environment of increasing interest rates. The trend in the market signals a departure from mergers and acquisitions funded by debt.

In the face of an uncertain economic outlook for Australia, A-REITs anticipate a stabilisation of interest rates. This expectation aims to enhance confidence in making investment decisions and contribute to ensuring a steady stream of returns for investors.

Australian Equities

Over recent years, the Australian economy has transitioned from a high growth / high inflation dynamic (2021), to decelerating growth with higher inflation (2022), and economists are now forecasting a period of slower growth and modest but sticky inflation. Such a middling environment has historically been supportive, noting that Australia is now at the bottom of a 2.5-year trading range (6,900–7,600) for the S&P/ASX 200 index. Historically, the sectors that outperform following the RBA’s final hike have been the defensive and non-cyclical growth segments, such as consumer staples, healthcare, and insurance sectors.

With China growth expectations and investor positioning highly negative, tentative signs of stabilisation for China’s economy over recent months may also be enough to see the major miners on a stronger footing for the year ahead. The energy complex remains attractive given geo-political uncertainties and the major banks have seen earnings expectations stabilise of late, with both CBA and NAB launching buybacks, given strong capital positions.

The bottom line is the S&P/ASX 200 trades at 14.5x, in line with its long-term average, but at a 10% discount to the MSCI World ex-Australia index. Australia’s relative valuation to the rest of the world is now in the bottom decile of readings since 2008, providing an element of valuation protection not seen in other major markets. From sector perspective, real estate, retailers, and financials are favourably leveraged to a growing population longer term, though these sectors will need to navigate a potentially tricky year ahead as consumers grapple with the impact of tight monetary policy.

Looking ahead to 2024, several positive factors emerge on the market horizon. Inflation is exhibiting better control, and although interest rates may not see a decline, signs point to a potential stabilisation. Despite prevailing geopolitical tensions, there are promising indications of improved relations between Australia and China, suggesting a favourable trade environment.

While expectations lean toward continued economic growth slowing, particularly in Australia and other global regions during the first half of 2024, the consensus does not foresee Australia slipping into a recession. Low unemployment rates, coupled with the resumption of robust immigration and population growth, are anticipated to provide a solid foundation for the economy. The key positions that make up a robust portfolio include Defensive equities, including healthcare and utilities, Inflation-linked bonds.

For Australian investors this would mean preparing for a weaker US dollar which would detract from the return Australian investors receive from US investments. If we are correct and the US dollar drops against the Aussie dollar a hedged investment would provide better returns.

Australia’s status as one of the world’s best-performing equity markets over the long term can be attributed to enduring structural growth drivers such as population growth, sound corporate governance, a vast and cost-effective natural resource base, a high dividend yield (supported by franking credits), and robust real dividend growth fuelled by capital discipline. These foundational drivers are expected to reassert themselves in 2024 as conditions continue to stabilise.

Encouragingly for investors in 2024, a significant portion of the risk has already been factored into markets. While challenges persist, the current environment presents an opportune time to invest. The prospect of acquiring shares at a more favourable risk-adjusted price is particularly exciting, setting the stage for potentially superior long-term returns.

Global markets

In summary, recent achievements include a reduction in inflation concerns, aligning with central bank targets. Projections indicate a slower global growth trajectory in 2024, driven by a subdued consumer in a less favourable job market. Although most central banks may have peaked in rates, caution is required to address residual inflation risks, particularly in services.

The global and US growth outlook presents challenges in returning to a low inflation environment due to the less disinflationary medium-term landscape. Anticipating rate reductions by mid-year, central banks, led by the United States, plan to counter decelerating growth and rising real rates amid falling inflation. Australia may experience a delay in this transition due to a robust macro backdrop, supported by a stabilising China, while Japan is expected to maintain stimulative policies.

There is potential for increased market support as the path to lower rates becomes clearer. This favours fixed income returns with a robust overweight position, compared to a constructive yet neutral stance on equity returns. While a more favourable equity environment is anticipated, the year also brings the potential for renewed volatility, driven by conflicts in Europe, elections in the US and Taiwan, and evolving structural dynamics in artificial intelligence (AI) and the energy transition.


“Don’t fight the Fed” and “higher for longer” are key mantras as we navigate through the most aggressive monetary policy tightening cycle in over four decades. As we approach 2024, the debate between recession and a soft landing continues, fuelled by crosscurrents in economic data and inflation. Notably, the inverse relationship between Treasury bond yields and stock prices, a prominent feature in 2023, is expected to persist into the coming year.

While the Fed signals a reluctance to cut rates in the near term, expectations for the start of an easing cycle may remain elusive in 2024. This uncertainty echoes the shifting expectations observed throughout 2023. The Fed’s potential rate cuts by mid-2024 might signify a response to worsening economic conditions, particularly in the labour market. An important expectation for the upcoming year is the Fed’s shift from focusing on inflation to prioritising employment within its dual mandate.

The economic landscape anticipates challenges, projecting a brief and shallow recession in early 2024. High inflation, elevated interest rates, diminishing pandemic savings, increased consumer debt, and the resumption of mandatory student loan repayments contribute to this outlook. With real GDP growth forecasted at 2.4 percent in 2023 and declining to 0.8 percent in 2024, consumer spending resilience is expected to wane in Q1 and Q2 2024.

Business investment, which stalled in Q3 2023 due to rising interest rates, and residential investment growth, dependent on declining interest rates, present additional economic dynamics. Government spending, driven by infrastructure investment legislation, offers a growth factor, yet political volatility may temper its impact. Inflation progress is anticipated, with year-end readings at about 3 percent in 2023, aiming to reach the Fed’s 2 percent target by the end of 2024.

Persistent labour market tightness, influenced by an aging workforce, serves as a moderate yet enduring factor preventing significant economic contraction and enabling a future rebound. Late 2024 envisions reduced economic volatility, a return to stable growth rates, inflation approaching 2 percent, and the Fed lowering rates to around 4 percent. However, ongoing labour market tightness remains a challenging aspect in the foreseeable future.

Despite a mid-year equity rally, only US equities have outperformed USD cash yields year-to-date, primarily led by large tech and AI-exposed companies. As we look ahead to 2024, similar challenges persist, with cash yields posing a high hurdle, and US equity valuations acting as a drag on forward returns.

The positive aspects for 2024 include macro forecasts indicating stable unemployment rates, anchored yields, and falling core inflation, providing a somewhat larger tailwind for equities compared to the previous year. Despite valuation constraints and the risk of higher rates due to stronger-than-expected growth, there are potentially more positive elements. A positive supply side of the economy, lower inflation enabling non-recessionary easing by the Fed and the growing traction of the AI theme could contribute to an upside for equities.

In a “higher for longer” world, companies with strong balance sheets and larger ones may have room to extend their outperformance. This suggests a preference for a barbell strategy, combining exposure to US mega-caps with investments in some of the more beaten-down cyclical areas.


Reflecting on 2023, a year marked by uncertainty and instability, there has been notable progress in addressing inflation in Europe, yet recession concerns cast a shadow. As we look toward 2024, the outlook for capital markets appears mixed. Bankruptcy filings have surged in Europe, credit growth is sharply decelerating across most banking sectors, and central banks, despite reaching peak cyclical policy rates, maintain tightening biases. Production stagnation, particularly evident in disappointing German and major European PMI figures, persists.

The forecast for EU growth is grim, shaped by economic challenges, rising default rates, and a comparatively weaker consumer position than in the US. The EU seems poised for an economic slowdown in 2024, supported by lending patterns indicating weaker capital expenditures in the coming months.

Continued credit tightening is anticipated to contribute to lowering inflation in 2024, though not as rapidly as witnessed in 2023. We expect weaker growth in major economies, coupled with increased asset quality deterioration globally. Advanced economies may experience a marginal uptick in unemployment, and potential risks include persistent inflation, prolonged tight financial conditions, and uncertainties in commercial real estate.

Earnings growth in Europe is projected to remain flat in 2024, contingent on avoiding a recession. Our recommendation is to hold an “underweight” position in European equities, acknowledging their reasonable valuations compared to the inflated levels in U.S. stocks. The second half of 2024 could witness a potential reassessment of this stance if monetary policy eases, prompting a re-evaluation of European equities.

United Kingdom

As we look ahead to the coming year, the prospect of easing inflationary pressures in the UK emerges as a potential boon for consumers. If inflation subsides, real wage growth could outpace goods prices, offering relief from the burden of living costs. Additionally, the UK’s ‘real living wage’ is set to rise to £12 per hour in 2024, further enhancing consumers’ spending power. With household savings already elevated compared to pre-pandemic levels, there is potential for increased discretionary spending.

The pivotal question lies in whether the surplus income from real wage growth will be directed toward bolstering cash deposits or fuelling discretionary consumption. Consumer behaviour, often shaped by media narratives, remains a variable in this equation. A potential decline in inflation and the prospect of a rate cut in late 2024 could positively impact sentiment, reinvigorating discretionary spending and potentially stimulating the UK economy from mid-next year onwards.

The substantial reserves in UK household savings, while currently conservative, are likely to be injected into the domestic economy sooner or later, potentially unfolding in 2024. This presents a promising outlook for the UK economy.

Expectations of inflation reaching the government’s 2% target in 2024 seem optimistic, given structural factors like higher raw material costs, capital expenses, and labour shortages. To address these challenges, corporations may need to intensify investments in technology and AI to enhance productivity and support profit recovery. The upcoming year could be transformative in this aspect, witnessing increased corporate investments in robotics and AI.

When evaluating the valuations of UK equities against global peers, a clear disparity emerges. The UK market exhibits nuanced opportunities, with the FTSE 100 driven by nominal GDP growth factors such as Oil, Miners, and Banks, while the FTSE 250 reflects a play on UK interest rates. If interest rates have indeed peaked and growth is decelerating, particularly to a standstill, the case for UK small and mid-caps becomes compelling, given their relatively low valuation levels. Navigating these complexities may necessitate a highly active, all-cap approach to investing.

Looking at the broader global scenario, a shift towards loose fiscal policies combined with controlled monetary measures, reminiscent of the post-World War II financial repression era, could set the stage for an equity bull market.


Alongside governance reforms, Japan’s stock market in the current year has been influenced by the anticipation of a shift in the Bank of Japan’s ultra-loose monetary policy, complemented by a favourable currency tailwind for Japanese exporters.

Japan’s key inflation measure accelerated for the first time in four months, coming largely in line with market expectations that price gains will continue and heightening the Bank of Japan’s dependence on data ahead of its December policy meeting.

 Following a prolonged period of chronic deflation, 2023 witnessed a surge in inflation driven by substantial fiscal and monetary measures aimed at revitalising the economy. Economists project that core CPI, excluding fresh foods, will sustain levels above 2% in 2024. The expected wage growth is anticipated to trigger a shift in Japan’s exceptional monetary easing, signalling the conclusion of the Bank of Japan’s negative interest rate policy. This transition is contingent upon policymakers confirming a positive cycle of increasing wages and service prices, albeit with uncertainty about the timeline for this confirmation.

Japanese corporations continue to exhibit robust earnings momentum, with growth in the coming year being driven by sectors recovering from cyclical downturns, including electrical appliances, raw materials, chemicals, machinery, and information and communication. While Japan’s economy is poised to decelerate after recovering pandemic-induced output losses, this slowdown will enable the Bank of Japan to sustain its accommodative monetary policy stance into 2024. However, the persistence of negative interest rates is expected to exert upward pressure on both prices and wages, potentially leading to the Bank of Japan’s decision to raise rates in the first half of the upcoming year. This policy shift is anticipated once policymakers gain confidence that the wage growth acceleration in the 2024 shunto (spring labour negotiations) will be distinctly evident.


A prevalent oversight lies in underestimating the substantial damage inflicted on both household balance sheets and businesses in the aftermath of the pandemic. Despite a rapid surge in economic activity upon reopening, consumer spending, particularly, entered a slump. Fragile businesses, grappling with the aftermath of lockdowns and subdued demand, exercise caution in hiring, resulting in an overall economic downturn.

Another underestimated factor is the fiscal drag experienced this year in China. In contrast to the US, which witnessed a positive fiscal upside, China faced the opposite scenario. Post-lockdown economic recovery led to a government revenue rebound but spending decelerated due to fiscal pressures on local and provincial governments burdened with substantial debt.

The real estate sector bears the brunt of shifting expectations in the wake of the pandemic, affecting housing prices and perceived supply and demand dynamics. Real estate developers grapple with defaults and restructuring, causing a significant hit to sentiment in the sector.

Goods consumption in developed economies, following pandemic-induced overspending, is slowing down, contributing to a decline in Chinese exports. These combined factors create formidable pressures on the economy.

China’s measured approach stems from the awareness of significant leverage in the economy, leading to a cautious and observant stance. Additionally, a sudden burst of activity in the first quarter alleviates the immediate need for extensive intervention.

Looking ahead, there’s cautious optimism. While the consensus estimate anticipates a 4.5% year-over-year growth in the Chinese economy in 2024, there is potential for a mild upside. Consumer spending is gradually recovering, with retail sales consumption showing positive year-over-year growth. Government initiatives, such as a 1 trillion RMB special treasury issuance for infrastructure spending and easing measures, are expected to further support the economy.

The outlook for Chinese stocks is nuanced. While sectors like real estate and finance may face challenges, their low valuations and dividends could offer resilience. Sectors like electric vehicles (EV) and solar may exhibit better dynamics in the coming year, contributing to a more varied performance in the Chinese stock market.

Emerging markets

Despite China’s evident slowdown and a more restrained policy approach across the board, Emerging Markets have exhibited remarkable resilience, with GDP growth for 2023 consistently surpassing initial expectations. This growth has been notably driven by major economies such as India, Mexico, and Brazil. While a broader softening of growth is anticipated, our outlook suggests it is unlikely to escalate into a general recessionary scenario, with a mild recovery on the horizon by mid-2024. For the coming year, we expect EM growth to decelerate to an average of 3.6%, down from around 4% this year. Importantly, the growth premium favouring Emerging Markets over Developed Markets is projected to continue widening, with Asia once again making a significant contribution to global GDP.

Beyond the cyclical downturn, structural factors come into play, bolstering the prospects for Emerging Markets. These factors encompass a heightened global fragmentation, marked by reallocation, near/friend-shoring, supply chain de-risking, and the demand for critical materials in the context of the Net Zero Transition. Notably, key exporters of critical raw materials are predominantly found among EM countries, including Chile and China.

While acknowledging the costs of fragmentation, the subdued growth backdrop is expected to alleviate pressure on inflation. In 2023, EM inflation experienced a reduction, with a few exceptions where a disinflationary trend is projected to intensify over the next few months. Looking ahead to 2024, inflation is expected to land in the upper part of Central Banks’ target ranges or mildly exceed them. Nevertheless, potential upside risks to inflation, such as supply-side disruptions, should not be underestimated. The existing economic downturn, coupled with a tight labour market and workforce shortages, contributes to the persistence of core inflation, necessitating a cautious approach in policy formulation. It is crucial to avoid complacency on inflation dynamics, and a prudent policy mix should be sustained. Risks associated with fiscal profligacy or inefficiency, particularly in the context of the electoral cycle, should be vigilantly monitored.

Despite recent pressure from global financial tightening prompting unexpected rate hikes, we do not foresee a reversal of this trend. Emerging Market Central Banks are likely to continue a gradual reduction in policy rates given the prevailing circumstances.


As we step into 2024, it’s prudent for investors to reevaluate their portfolios, and the commodities landscape presents an intriguing outlook. Having commenced 2023 on the heels of a robust 2022 performance, commodities, spanning from energy to precious metals, offer a compelling avenue for portfolio diversification. A notable shift has occurred after a decade of subdued inflation and low interest rates, where commodities, overall, lagged.

The current higher-for-longer rate environment, coupled with persistent inflation, has injected renewed Vigor into the commodities market. Crucially, signs of core disinflation indicate that the U.S. Federal Reserve and the European Central Bank have likely concluded their interest rate hikes. This development is poised to alleviate pressure on GDP growth and lend support to commodities demand.

Commodity returns are further poised for enhancement, driven by OPEC-induced reductions in oil inventories and an increasing appetite for “green metals,” particularly emanating from China. As we navigate the evolving economic landscape, the commodities sector stands as a noteworthy consideration for investors seeking meaningful diversification.

Base metals prices are bottoming out for now, but more stable demand in the coming months could refocus attention on low inventories. This could drive an 11% recovery in the BCOM Industrial Metals sub-index over the balance of the year.


The past few years seem like a period of consolidation, setting the stage for a potential upward surge. Gold, historically known for thriving in inflationary and turbulent economic environments, appears well-positioned given the current economic landscape.

The question on investors mind is, how high could gold prices soar? Various factors will come into play, encompassing inflation rates, Federal Reserve actions, geopolitical dynamics, and even the impending U.S. presidential election.

As we approach the 2024 election, if there’s a perception that the incoming administration plans to implement expansive fiscal policies—such as increased government spending and tax cuts—it could generate additional inflationary pressures, this, in turn, may amplify the demand for gold as a hedge against inflation.

Considerations of government and industrial demand will influence the trajectory of gold prices. Overall, industry experts anticipate a rise in gold prices in 2024, with expectations of settling around the $2,000 mark and establishing a support level.

Growing evidence that inflation has peaked, and that central banks are slowing the pace of policy tightening has triggered speculation that the US dollar has passed its cyclical high, which could provide a boost to gold prices next year.

Strengthening gold demand from global central banks, which bought 399 tonnes of the precious metal in the third quarter, according to the World Gold Council. That was up 341 per cent on the same period last year and marked a record quarterly amount.

Turkey, Egypt, Iraq, Uzbekistan and Qatar were among the largest buyers over the period, due to the fact they have depreciating domestic currencies, debt defaults and deteriorating geopolitical relations.

However, in the medium to long term, the sentiment of global central banks to de-dollarize and guard against geopolitical risks will support gold prices.


Markets are now pricing in the possibility that Saudi Arabia will soon flood the global market with more oil to regain market share and squeeze out the higher-cost producers. While OPEC+ concluded last week’s meeting with members pledging to adhere to voluntary production cuts, markets are seeing a different outcome, and one where Saudi Arabia intervenes as it has done before. Saudi Arabia has the capacity to ramp up its output by an additional 2.5 million barrels a day.

The last time this occurred was in 2014, when Saudi Arabia shocked markets and increased supply. This resulted in flushing the market out, which involved sinking crude prices from highs of around $110 a barrel to $50. The fall in oil prices eventually forced higher-cost producers to exit the market, as pumping was no longer profitable. A similar dynamic could now be underway, with Saudi Arabia able to keep producing and withstand lower prices.

This looks to me like a repeat of 2014, with Saudi aiming to regain market share and pricing power at the expense of higher cost producers. As supplies from its rivals disappeared, the Kingdom was able to regain traction over prices. Also not helping is production from the US, which has been on a tear. Monthly production hit more than 13.2 million barrels a day recently.

Sector 12 Month Forecast Economic and Political Predictions
AUD 65c-74c


The Australian dollar, currently trading at US67¢, is poised to rally more than 13 per cent against its US counterpart by the end of June 2024,

Despite a recent soft patch in Australia’s activity data, persistently elevated inflation dynamics are keeping the Reserve Bank of Australia in monetary tightening mode, while we continue to believe China’s reopening should improve sentiment toward the Australian dollar.

Gold BUY

$US1700-/oz- $US2200/oz

A sustained rally in gold will be continued due to worsening political risk, a peak in bond yields and the US dollar, or an equity bear market combined with revived recession risks.
Commodities BUY

Oil prices likely to rise, despite only moderate economic growth. Supply/demand impact more evident for industrial metals.

While the long-term supply-and-demand characteristics remain favourable, we think the movement to a market that is trading growth rather than inflation is less positive over the medium term, especially given disappointment at China’s growth and stimulus efforts so far.
Property BUY



Conditions remain volatile, but higher interest rates and uncertainty about the office sector creates value opportunities for liquidity providers in public REITs and private real estate secondaries, and there may be value to come in primary private markets.

More structurally, we believe post-pandemic growth dynamics will continue to support key sectors such as data centres, warehouses, industrial and multi-family residential.

Australian Equities BUY


Positive demographic trends may help curb inflation. Household savings balances remain elevated. Commodities may rebound due to supply constraints.
Bonds Begin to increase duration.

3tr-5 yr.

Prefer corporates over government bonds due to yield pick-up and sound fundamentals.
Cash Rates One more rise to 4.60% Cash has appeal as a means of diversification and as a complement to the potential attractions of fixed income markets, and we maintain a moderately constructive view currently.

The RBA appear more comfortable inflation is coming back down, particularly given there is still a large amount of pass-through from the hiking cycle still to come.



Global Markets
America Underweight


We remain cautious on equities over the 12- to 18-month horizon and favour quality exposures and large caps over small caps: the longer a U.S. slowdown is delayed, the milder it is likely to be, but we still expect it to come.










The outlook for the manufacturing sector across Europe remains subdued. Survey data from November continue to paint a negative picture with orders falling further and pessimism prevailing regarding production. Moreover, labour has also been falling in the sector, another signal that industrial output is still facing troubles.

The BoE may be forced to keep rates elevated. Fiscal consolidation may need to be accelerated. Tight labour markets could keep wage inflation elevated.

Japan Accumulate


Despite steady inflation, the BOJ kept its ultra-low monetary policy unchanged. In July, however, it surprised the market by relaxing its yield curve control policy, suggesting potential for a flexible approach to the cap on the 10-year Japanese government bond yield.
Emerging markets Start Buying


Monetary tightening in most emerging markets has peaked. Equity valuations are attractive relative to the U.S. Further Chinese stimulus is expected.



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