Global Markets Overview: January 2023

In order to bring you the most timely information in 2023, we’ve decided to issue our Global Markets Overview at the very start of the month. This issue will feature market data as of 26 January. Likewise, all future issues will follow this cadence. Please share any feedback with Katie Hopkins.

The economic outlook for 2023: The US, Europe, and China:

• In many countries, a material economic slowdown of some form has become necessary to reduce inflation to levels that are acceptable to central bankers. The critical questions for markets are how deep and how long that slowdown will be and if current monetary policy settings are enough to deliver that outcome.
• In the US, the answer lies in how the labour market, wage growth, and inflation expectations evolve and we expect monetary policy to be highly reactive to these datapoints. A “soft-landing”, e.g., US real GDP growth at around 1% in 2023, is a possibility. However, some form of economic and/or earnings recession in 2023 or 2024 is more likely in our view.
• The expected path for US policy rates – a peak of 4.75% - 5.0% in the next few months and then a sequence of rate cuts – is plausible. However, we see the risks as more balanced towards policy rates being higher than markets are pricing-in over 2023/24 because core inflation may be “stickier” than expected and the Fed may not cut policy rates as quickly as expected.
• Eurozone inflation and growth remains sensitive to the price of energy, geopolitical conflict, demand for energy elsewhere, and labour imbalances. The UK faces similar issues but these are compounded by weak exports relative to imports, a reliance on foreign capital, and a potentially weak currency.
• China is at an inflection point after the unwinding of its zero-COVID policy. The easing of health-related policies means aggregate demand should recover strongly in 2023, albeit after an initial negative economic impact associated with high COVID rates.

Contact

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Catheleyne van Erp

Head of Investments Netherlands & Belgium

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