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Vantage Point: Pivotal year

Welcome to another edition of Vantage Point and our look ahead to 2023.

Featured Insights

Japan Macro Update: Yield Curve Control Recalibration Necessary for Policy Sustainability

The Bank of Japan’s experiment with Yield Curve Control and asset purchases is set to wind down. The current framework is getting exorbitant, worsening adverse side effects...

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China in 2023: Anatomy of a Messy Re-opening
 

After an annus horribilis, we expect China’s economy to experience a messy but much needed growth recovery by mid-2023 on the country’s pivot from its zero-Covid policies.

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The pain in the equity market is likely not over

The market expects the inflation problem to be sorted out by a shallow recession and loosening monetary policy in 2023. We think otherwise…

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Monthly Market Roundup

 

January 2023

Year in Review: 2022

  • In 2022, global growth decelerated, inflation surged, and in a quest to restore price stability, central banks tightened monetary policy dramatically.
  • The unexpected Russian invasion of Ukraine started off the year in shock, and the war continues to unfold into 2023 as we write this. Europe was hit especially hard with energy prices surging but ended the year better than expected due to its strong and varied response to the energy shock.
  • The Covid-19 pandemic and associated policy response continued to exert a strong impact on the global economy. China upheld its zero-Covid policy (ZCP) for most of the year and enforced strict lockdowns in order to tame the spread of Covid. Overall, China pushed down on global growth and inflation. We see these negative trends stemming from China as reversing in part in 2023 as the country abandons its ZCP.
  • Central banks turned hawkish – namely the Fed, ECB, and BoE – in response to elevated, rising inflation and weak – yet positive – growth. The Bank of Japan (BoJ) remains the last dovish major central bank standing.
  • In 2022, nearly all asset prices plummeted – including sovereign bonds – other than some commodity markets and the energy sector of the equity market. This bear market stands contrary to what we have observed in many of the past slowdowns.
  • The outlook for 2023 is highly uncertain, but the aim of our analysis and views remains unchanged: to help investors be well prepared for what comes next.
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Points of View

US inflation momentum slows in October

US October Consumer Price Index (CPI) was weaker than expected in both headline and core. The deceleration in core inflation should be particularly comforting for the Fed.

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Japan: Yen in a Free Fall, but a Policy Pivot is Nearing

Describes how global policy divergence and other macro-drivers of large-scale Yen depreciation are still intact, but these are now starting to discernably raise inflation pressure in Japan.

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Elevated Sino-US Tension over Taiwan to Accelerate Economic De-Coupling

The Taiwan related tension may not go away quickly with the upcoming quinquennial transition in China and US mid-term elections. We cover more in this note.

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Food Price Shocks: Macro and Investment Implications

This note details our latest analysis of prolonged food price shocks and their impact on macro and investments.

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Bear Markets: More Pain, Then Gain

The history of bear markets makes for gloomy reading. However, this brief note focuses on what we might expect once the -20% threshold has been crossed. How has the market (S&P 500) performed after entering a bear market?

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Don’t Blame China for Inflation Damage in the U.S.

The state of global supply chains are widely seen as heavily influenced by developments in China. While it is true that China accounts for a large (nearly 30%) share of global manufacturing and shipping, we believe that it is far from obvious that it “causes” U.S. inflation. We cover some highlights and metrics in this note.

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A Deep Dive into QT

In this third note of three, we review the arguments behind these opposing views in the previous two, in the hope to provide some clarity for investors as they attempt to navigate markets in the challenging times ahead.

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Could QT lead to a steeper yield curve?

In the first note in a series of three on QT we argued that QT will most likely contribute to a flattening of the yield curve. Instead, many financial market participants tend to associate Quantitative Tightening (QT) with a steepening of the yield curve.

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The Impact of QT on Financial Markets

We have written extensively on our expectations for future rate hikes and the peak in US rates. In this paper, the first in a series of three on Quantitative Tightening (QT), we summarize our thinking on QT and its implications for markets.

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Yield Curve Inversion... This Time Is Not Different

We believe the possibility of a recession in the US over the coming two to three years is increasing. As such, we take a strong signal from the recent (albeit brief) yield curve inversion and in this note, address how our analysis led to this conclusion.

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Global Economics and Investment Analysis Group

Meet the minds behind the research.

Shamik Dhar

Chief Economist

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Aninda Mitra

Head of Asia Macro & Investment Strategy

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Sebastian Vismara

Senior Financial Economist

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Jake Jolly, CFA

Senior Investment Strategist

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Sonia Meskin

Head of U.S. Macro

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Zoë Mader

Lead Analyst, Emerging Leaders Program

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MARK-179764-2021-03-26