This week, we cover three questions that represent challenges in the outlook for the economy and markets, albeit one that is a positive surprise for some investors.
1.The widening Middle East war: how will it impact the world?
2. Dockworkers on the US East Coast went on strike for the first time since 1977. Could labor actions derail the economy?
3. Does China’s announced monetary and fiscal action change the return outlook for Chinese equities?

Resigter now to listen to the latest CIO views on Veracast.

In early August, we raised our US equity allocation after a double-digit decline in technology shares. Corporate profits have risen to record highs and we see further gains to come through 2025.

After a 50 basis point easing step from the Fed that marks the start of a cycle, markets embed nearly 200 basis points of additional Fed rate cuts over the coming year. This reflects an unusual circumstance of a softening labor market and rising GDP (this is an outcome close to our base case view coming into the year, please see our Wealth Outlook 2024).

Rising global food insecurity has come under the spotlight following a series of geopolitical shocks, including the COVID-19 pandemic and Russia’s invasion of Ukraine. Food security concerns have also been compounded by the effects of a shifting climate and increasing evidence of damage caused by accelerating biodiversity loss and water scarcity. Amid concerns about immediate and long-term food security, agriculture policies are caught in the crossfire between short-term food security and sustainability.

• October 2023 price is gone, the opportunity remains.
• Markets still price in too high a probability of a March rate cut, in our view. Still, 150 bps of cuts expected in 12 months is not extreme.
• What has happened since OL24: Junk rally amid dovish Fed turn.
• How’s the broadening trade going?
• Health Care: the anti-obesity craze won’t stymie innovation.
• Yield curve is now very flat, and positively sloped between intermediate-to-long dated maturities.
• Intermediate IG still offer attractive “real” yields vs expected inflation with yields of about 5.15% for duration of about 4 years.
• USD: The recent squeeze up in DXY may partly be due to a rise in risk aversion related to the Middle East.
• Presidential Year Stock Market Returns.
• Market-cap vs Equal-weighted S&P 500 Over Time.
• China’s equity performance is uncorrelated with its GDP growth, while the property market has acted as a key source of wealth generation since 1997.
• Japan – Profitability, Investor Inflows, Currency Kicker.

Fed Chair Jerome Powell’s “The Time Has Come” speech signaled the Fed’s readiness to act at the next FOMC meeting on September 18^th. Given the signals from the Fed, we expect that the central banks of the Gulf Cooperation Council (GCC) economies will follow suit by reducing their policy rates, potentially starting with a 25-basis point (bps) cut in September.

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