Investment Monthly
Cooling growth
06 June 2024
Key takeaways
- Our base case continues to be for a ‘softish’ landing, but there is significant uncertainty over the rates outlook given high services inflation and resilient growth. We remain cautious on western risk assets
- Our preference is for selective exposures to fixed income, risk assets, and private markets. In credits, high all-in yields could offer income opportunities. In stocks, earnings growth is broadening out
- We continue to see opportunities in the EM and Frontier space. We also see a key portfolio role for alternatives (especially private credit, hedge funds, infrastructure, and real estate)
Macro Outlook
- Global growth is robust but shows signs of cooling amid still-restrictive policy. Sticky inflation has delayed rate cuts, but we expect growth to soften in H2 and disinflation trends to re-establish later this year
- The data suggests a softish economic landing remains likely. But investors face a higher-for-longer rates outlook, with elections, geopolitics, climate change, and the outlook for longer-term growth fuelling uncertainty
- EMs and DMs have traded places, with US activity surprising to the downside. Divergence still reigns, but Asia and Latam EMs are broadly expected to see slow-but-steady growth and lower inflation into 2025
Policy Outlook
- Sticky inflation has led the Fed to back off from near-term rate cuts. We still expect that central banks in Europe and the UK will be able to ease policy this summer, although the pace of easing will depend on Fed policy
- The DM fiscal policy stance is expected to act as a slight drag on growth in 2024. But public deficits are likely to remain large, with no expected return to the fiscal conservatism of the 2010s
- EM countries in Latam and Europe led the global easing cycle, and we expect that to continue, although the pace of rate cuts has slowed as central banks seek to avoid currency volatility amid a strong US dollar