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Global Macro Outlook Q3 2023: The long and winding road

Macroeconomic Strategy Team

6 July 2023

Key takeaways

  • Recession postponed, not canceled—Despite the aggressive policy tightening we’ve seen so far, economic activity in developed economies proved to be more resilient than expected amid a strong rebound in the services sector.
  • Inflation is still too sticky at uncomfortable levels—While headline inflation is easing, core inflation remains stubbornly high, and it isn’t just due to services inflation: Goods inflation is inflecting higher after a period of decline.
  • We believe central bank policy easing will be more gradual than consensus expectations—From the Bank of Canada to the Reserve Bank of Australia to Bank Negara Malaysia to the U.S. Federal Reserve, central banks around the world are proving to be more hawkish than expected.
  • Shifting geopolitics and the need for a new market playbook—There are signs that we’re entering a new global regime, requiring a rethink of how risk assets respond to changes in the macro backdrop. To be forewarned is to be forearmed. We continue to believe:

1. The market is premature in its pricing of dovish pivots from central banks, both in terms of timing and magnitude.

2. There’s a risk that even if the Fed pauses in the coming months, the next move could be more tightening, not easing.

3. Markets need to reassess the central bank put for asset prices.

 

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