Monthly House Views -Resilient economy but losing momentum - October 2023

A tightening policy-mix to take its toll on the economy. Developed economies are set to slow further over the next few quarters as fiscal policies normalisation and the lagged effects of monetary policy tightening feed through. But we expect the adjustment to be modest, mitigated by persistently strong labour markets and lower inflation which will restore household purchasing power. The United States economy should continue to hold up better than the euro area and the United Kingdom. The Chinese recovery will continue to underperform, held back in large part by the problems of its property sector.

Central banks: peak but no pivot. The recent uptick in oil prices should not derail the ongoing decline in inflation. Rates at the major central banks seem to have reached their peak but the monetary authorities will likely await clearer signs that underlying inflation is really beaten before cutting rates. The odd one out here is the Bank of Japan, which could gradually stiffen its highly accommodating policy.

Balance of equity and fixed income, still preferring the US markets. We are standing by our strong diversification in terms of global positioning, which has allowed us to catch the rally in equities since the start of the year, while retaining some protection against any renewed turbulence. We still prefer the United States markets which stand to gain from the better economic outlook. We are moving to neutral on the Japanese currency, which should halt its decline in the new monetary order.

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