Market Analysis and Investment Insights

The clash between Israel and Iran highlights the less secure environment for global energy supplies. As we noted in last weekend’s CIO Strategy Bulletin, for most investors, reacting to such news is too late to be effective. Portfolios should be prepared for a less-than-ideal world as embodied in our Wealth Outlook 2024 theme “Economic Security”.

The “Fed Question” is back. One pressing question for investors beyond unpredictable shocks is resurfacing from 2022-2023. Will the Federal Reserve be able to tame inflation without collapsing the economy? Markets now show “healthy concern.” This may actually improve future returns. Among a variety of factors, without pricing in strong easing steps by the Fed, markets are much less vulnerable to disappointment.

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

Strong US labor market data, consumer spending and a global trade/manufacturing recovery are “good reasons” for resumed upward pressure on interest rates. In contrast, a “surprise” rebound in US inflation after a sharp slowing in 2023 is driving tighter financial conditions. (i.e., a stronger US dollar, higher bond yields and lower share prices together).

Inflation measures spiked in the first quarter for a third consecutive year. But more than mere seasonal distortions, data suggest some of the slowing in the US CPI was overstated in 2023.

The inflation news requires a reset of the Fed’s “confidence vigil” before it can commence in unwinding restrictive monetary policy. This pushes back the timing of any potential Fed easing step to July 2024 at the earliest in our view.

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.

Egypt’s journey towards economic stabilisation and growth has been recently marked by significant developments, including a historic interest-rate hike by the Central Bank of Egypt (CBE), a currency floatation leading to a drastic devaluation of the Egyptian pound, and a much-needed $8 billion loan agreement with the International Monetary Fund (IMF). These measures, essential for meeting the IMF’s longstanding demands for economic reform, aim to attract foreign investment, manage inflation, and ultimately strengthen Egypt’s financial stability.

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