CoreMacro

Special Report

Our recommendations for podcasts (on macro and markets, as well as non-work-related topics) to try over the holidays.

In this Strategy Outlook, we present the major investment themes and views we see playing out next year and beyond.

Special Report

Long-term deflationary forces in Japan are weakening, setting the stage for inflation to make a comeback over the remainder of the decade. Investors should prepare to structurally reduce exposure to Japanese bonds starting early next year. Higher Japanese bond yields will lift an extremely undervalued yen. To the extent that global growth should surprise on the upside over the next 12 months, Japanese equities could see some modest outperformance.

Special Report

What is the outlook for the European housing market amid rising mortgage rates and the energy crisis? Does housing represent a systemic risk? Can households weather the storm? And what are the opportunities, if any?

The kinked supply framework helps explain why US inflation rose so suddenly shortly after the pandemic began and why the economy is likely to experience a benign disinflation over the next six months.

Special Report

Stocks will only get temporary relief from gridlock. Inflation will abate but then remain sticky. US and global policy uncertainty and geopolitical risk will remain historically high.

As the FOMC explicitly acknowledged this week, monetary policy operates with substantial lags. We see the risks to stocks as tilted to the upside over the next 6 months but are neutral on global equities over a 12-month horizon.

Falling inflation will allow bond yields to decline in the major economies over the next few quarters. As such, we recommend that investors shift their duration stance from underweight to neutral over a 12 month-and-longer horizon and to overweight over a 6-month horizon. Structurally, however, a depletion of the global savings glut could put upward pressure on yields.

Special Report

The Fed’s asset sales are unlikely to lead to an additional outsized impact on long-maturity government bond yields beyond what expectations for the path of the fed funds rate would justify. However, the stance of monetary policy has tightened substantially over the past year, and is set to tighten even further over the coming several months. As such, investors should be focused less on the ostensibly unknown risk from the Fed’s balance sheet reductions and more on the known risk of conventional policy tightening, which is currently quite acute.

The kinked Phillips curve not only explains why inflation surged last year but makes a number of surprising predictions, chief of which is that inflation could fall significantly over the coming months without a major increase in the unemployment rate. In the near term, that is bullish for stocks.