Geopolitics

US fiscal, monetary, and foreign policies are unlikely to deliver any dovish surprises for investors in Q4, due to the impending government shutdown, persistent inflation, and instability among OPEC+ and China.

China’s reopening faltered and now it is applying moderate stimulus. OPEC 2.0’s production discipline is getting results, with oil prices climbing. The Fed will not be able to deliver dovish surprises in Q4 2023. Investors should expect stock market and commodity volatility and prefer defensive positioning.

Stocks perform worse in presidential election years than average years, especially in the first half of the year, and especially if the ruling party ends up falling from power. Investors should take risk off the table until the unemployment rate peaks.

The geopolitical backdrop remains negative despite some marginally less negative news. China’s stimulus is not yet large or fast enough to prevent a market riot. Two of our preferred equity regions, ASEAN and Europe, are struggling to outperform. Investors should stay defensive overall.

In this report, we explore what a new BRICS+ union means for the dollar over the next 6-to-9 months.

Investors should underweight global equities and risk assets; overweight US stocks relative to global; and overweight defensive sectors versus cyclicals.