In today’s briefing:
- Global Liquidity Is Set To Rise Strongly In 2023. Why?
- Gazing into 2023: Baseline Risks Assessed
- Mr. Bond, I Expected You To Die
- The Stealth Change in Leadership You May Have Missed
- How Much Is A Recession Priced In?
Global Liquidity Is Set To Rise Strongly In 2023. Why?
- Global Liquidity is at ‘maximum tightness’ and is already starting to inch higher. 2023 could see strong gains, as did 2001 following Y2K
- China’s PBoC has jump-started liquidity injections and the US Fed is again adding liquidity (US$109 billion). On top the weaker US dollar and oil prices will underpin rising liquidity
- Taking 2001 as the benchmark year for 2023: bonds will be flat and stocks at best range bound, but generally weak. Profits may suffer for another 15-18 months.
Gazing into 2023: Baseline Risks Assessed
- The resilience of the global economy to monetary tightening in 2022 should not be a major surprise given the lags in the policy transmission mechanism.
- The risk of a policy mistake by the Fed will increase in 2023, particularly as more gradual increases in the federal funds rate are instituted.
- China’s zero-tolerance policy towards COVID-19 has incurred significant economic costs, but future fiscal stimulus will be more selective due to issues about the impact on productivity and local government finances
Mr. Bond, I Expected You To Die
- The Treasury bond market is turning up while the stock market is turning down, which is a condition that hasn’t been seen for much of this year.
- We believe this action is the market’s signal of weaker economic growth, which should be bond bullish and equity bearish.
- However, much of the short-term outlook will hinge on next week’s CPI report and FOMC meeting.
The Stealth Change in Leadership You May Have Missed
- The market is discounting a global recovery as equities are generally leading the rotation, with European equities the clear leader.
- China is a laggard and dragging down the performance of emerging market equities.
- U.S. large-cap growth is dragging down the performance of U.S. stocks.
How Much Is A Recession Priced In?
- This short article will focus on answering a very relevant question: ok, recession, but is it already priced in?
- Over the last few weeks we kept hearing a recession has become consensus amongst analysts and market pundits, and onboarding consensus macro views at the wrong price in one’s portfolio can be a very expensive exercises.
- But we can do much more than rely on hearsay. Using different techniques, we can test to what extent a recession is priced in both in bonds and equity markets and derive actionable conclusions.
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