Economic Growth

The global economy has weathered the oil shock reasonably well so far. However, the risk of a recession will increase meaningfully if the Strait of Hormuz remains closed into June.

Global trade has held up despite US non-AI import volumes contracting by 25% over the past 12 months. The strength in global trade has concentrated in two areas: (1) imports of AI-related hardware and (2) developing countries’ imports, especially from China. Will these continue?

The relief rally in stocks can continue a while longer. However, much can still go wrong. As such, we are retaining a 12-month underweight to stocks but are moving to neutral on a short-term tactical horizon.

The Turkish financial markets will struggle in the very near term, but beyond that, the cyclical disinflation process will resume. Fixed-income investors should put Turkish 2-year local currencybonds on a ‘buy’ watch list.

We introduce our Macro Regime Indicators (MRI), a framework for forecasting growth and inflation surprises in the US. The MRI on the economy shows no substantial mispricing in either growth or inflation over the next 12 months.