US Dollar
Aggressive monetary tightening has always led to recession, although the timing is uncertain. The effects of high interest rates are starting to be felt. Investors should stay risk off and buy government bonds as a safe haven investment with carry.
In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.
US fiscal, monetary, and foreign policies are unlikely to deliver any dovish surprises for investors in Q4, due to the impending government shutdown, persistent inflation, and instability among OPEC+ and China.
The biggest misunderstanding in the markets right now is that to keep expected inflation well-anchored at 2 percent, inflation must <i>undershoot</i> 2 percent for some time. This implies that interest rate futures curves are mispriced, and that the probability of a ‘soft landing’ is lower than assumed. Plus: we show that the rally in oil has become fractally fragile, and recommend a tactical underweight.
China’s reopening faltered and now it is applying moderate stimulus. OPEC 2.0’s production discipline is getting results, with oil prices climbing. The Fed will not be able to deliver dovish surprises in Q4 2023. Investors should expect stock market and commodity volatility and prefer defensive positioning.
