Global

As the major central banks once again mull their policy options, they face a daunting task. They must phase-transition inflation back to imperceptible, without phase-transitioning unemployment to perceptible. This report explains why this will prove impossible, and what central banks will likely prioritise. Plus: the collapsed complexity of the recent stock market rally signals excessive trend-following. Until the complexity normalises, we are reluctant to chase the rally.

Global semiconductor demand will continue contracting, even though the pace of decline will moderate in 2023H2. While demand has increased briskly for Artificial Intelligence-type semiconductors, this will not be enough to lift aggregate global chip sales out of contraction. While momentum could push Emerging Asian semiconductor stocks higher in the short term, their share prices are vulnerable to the downside due to shrinking demand.

A benign disinflation will support equities over the next few quarters. Stocks will fall next year as a recession begins when investors least expect it.

What’s going on? The market-weighted stock market is up. But the equally-weighted stock market is not up. Neither is credit. Neither are industrial metal prices. Neither is the oil price, despite two waves of OPEC output cuts. We explain the dichotomy. Plus: European basic resources stocks can rebound, but Netherlands is likely to reverse.

The AI craze could further lift stock prices, boost capex, and delay the onset of the next recession. Looking further out, reaping the profit windfall from AI may take longer than many investors expect.