Fixed Income

The Fed’s actions at its meeting last Wednesday were no surprise – downshifting to 25 basis points while guiding for more hikes was widely expected – but Chair Powell’s newly conciliatory tone at the press conference helped to spark a two-day equity rally. We remain overweight equities, expecting the S&P 500 to rally into the mid-4,000s at some point in the first half.

This week we present our Portfolio Allocation Summary for February 2023.

Financial markets were taken on a wild ride between Wednesday and Friday of this week, with hugely important monetary policy meetings in the US, euro area and UK along with a rash of economic data. Despite all the news, noise and market volatility, the underlying message for monetary policy and bond yields in the US, euro area and UK is unchanged.

The US economy will experience a period of benign disinflation over the next few quarters. Beyond this goldilocks period, either the economy will slip into a mild recession in 2024, or more ominously, a second wave of inflation will prompt the Fed to slam on the brakes, leading to a deep recession.

This US Bond Strategy Insight discusses what we learned from yesterday’s FOMC meeting and press conference, and discusses the implications of the market’s reaction.

When does rising unemployment become a bigger problem than inflation? The Fed won't cut rates until that happens, probably thwarting market hopes of big cuts in 2H.

The Web 2.0 bubble is bursting, with far-reaching consequences for US stock market behaviour, sector allocation, and global asset allocation.

This week’s Special Report goes over the structural problems facing the UK economy and our outlook for UK gilts and the sterling following turbulent moves in 2022.