Global Markets Overview: April 2022

Our 2022 Investment Outlook vs. what markets are pricing-in

For investors tracking the key features of the global economy and understanding the future risk-and return environment, we suggest focusing on the following three categories:

• Economic policy: Strong aggregate demand is placing pressure on monetary and fiscal policy to “pivot” tighter. Keeping abreast of both the pace and type of this policy pivot is the first key category of indicators. For example, in the U.S., our baseline is for the Fed funds target rate/range to reach 2.00-2.25% at end-2022 and 2.75-3.00% at end-2023. U.S. short-interest rate markets are currently pricing-in for the Fed funds rate to increase to a little above 3% by the end of 2023.
• Inflationary pressures: High current inflation – due to rising energy and food prices, high demand for goods, and supply chain bottleneck for those goods – is putting pressure on monetary and fiscal policy. In the U.S., our baseline is for CPI inflation to fall gradually from the second half of this year and reach 2.5% in the second half of 2023. U.S. breakeven inflation markets are currently pricing-in for inflation to fall gradually and long-term average inflation to remain stable.
• Capital cycle: Household and business balance sheets have high levels of cash from policy support. If, how much, and where they spend will be key to both growth and inflation outcomes. In the U.S., our baseline forecast is for household spending and business investment to underpin real GDP growth rates of c. 3.0% in 2022 and c. 2.0% in 2023. U.S. credit markets are currently pricing-in slightly below average credit losses from defaults / downgrades, consistent with expectations of good economic growth over the next five years.

To stay up-to-date and receive additional special feature reports from Willis Towers Watson on global capital markets, please contact Sander Gerritsen.

Author

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Sander Gerritsen

Head of Investment Strategy, Netherlands

email Email phone +31 88 54 33 262

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