Economy

Inflation won’t fall fast enough for the Fed to cut rates preemptively before recession arrives. The risk/rewards balance is unfavorable for risk assets. Stay overweight bonds versus equities.

In our simulations of fairly deep global recessions averaging -1.5% in 2024 global GDP growth, we expect OPEC 2.0 to reduce output enough to offset lost demand. Even so, we find oil prices drop ~ $22/bbl – from ~ $100/bbl in 1H24 to ~ $78/bbl in 2H24. We remain long the XOP and COMT ETFs to retain oil and commodity exposures.

The recent increase in Korean exports will likely prove to be a mid-cycle rebound within a cyclical downtrend. Korea’s households and enterprises are among the most indebted globally, and their debt service ratio is among the highest in the world. Korea’s 10-year bond yields have peaked. We discuss opportunities in Korean stocks as well as in fixed income and currency markets.