Europe

European inflation will decline through 2023, which will greatly help households and consumption. But can European inflation remain low after that?

MacroQuant is overweight bonds, underweight equities, and neutral on cash. Within the equity universe, the model is underweight the US and overweight Japan, the UK, and Australia.

Recession is not yet fully priced in, so markets have further to fall next year. But watch for a buying opportunity in the second half.

The Chinese government will repress social unrest, then relax Covid-19 social restrictions to try to stabilize the economy. Russia will be aggressive in the short term but will pursue a ceasefire before March 2024. European and Italian risk will stay high on energy constraints.

European asset prices have rebounded sharply since September. Can this trend survive in the face of a weak Chinese economy where deflation prevails?

Today, we are sending you the BCA annual outlook for 2023. The report is an edited transcript of our recent conversation with Mr. X and his daughter, Ms. X, who are long-time BCA clients with whom we discuss the economic and financial market outlook for the next twelve months toward the end of each year.

Excess job vacancies in the US and UK reflect a labour market that cannot efficiently match unemployed workers with vacant jobs. This is because excess job vacancies reflect the shortage of labour supply in the 50 plus age cohort, whose skills are difficult to replace. In economic jargon, the post-pandemic ‘Beveridge curve’ has shifted outwards. Absent an unlikely shift in the Beveridge curve to its pre-pandemic version, killing US wage inflation will mean killing jobs. And killing jobs will mean killing profits. We go through the investment implications.