Summary

 

Eastspring’s Multi Asset Portfolio Solutions team anticipates a decelerating albeit positive global growth environment alongside moderating inflation in the next three to six months. Although this might benefit equities in the short term, the team is tactically cautious on global equities due to stretched valuations, potential data disappointments, and increased volatility. Meanwhile the looser monetary policy stance in developed markets presents a constructive backdrop for high-quality bonds.

This is an extract of our Q4 2024 Market Outlook. Click here to download the full report which includes a special feature “Gold continues to shine”.

Macro: Odds of a “Goldilocks” outcome improve post the Fed rate cut, yet risk of a US recession lingers

The global economy has been expanding steadily for the past 11 consecutive months, as shown by the J.P. Morgan Global Composite Purchasing Managers’ Index (PMI) Output Index. However, a closer analysis indicates that the global growth momentum is decelerating. Moreover, a widening gap between the stronger service sector and the weakening manufacturing sector underscores the increasing unevenness in growth.

Global Purchasing Managers’ Index (PMI)

Global Purchasing Managers’ Index (PMI)

Source: LSEG Datastream, Data is as of September 2024 end.

Both the monthly and annual headline US consumer price inflation rates have been on a noticeable declining trend and progressing towards the Fed's 2% target. Nonetheless the path towards this target may be uneven; core US CPI remains relatively persistent due to the still elevated shelter inflation component, though we believe this will reverse course in due time.

Citi Inflation Surprise Index (US, G10)

Citi Inflation Surprise Index (US, G10)

Source: LSEG Datastream; Citigroup. Data is as of 30 September 2024.

The team continues to monitor the US labour market and wage growth conditions to detect any big shifts in the inflation expectations. Additionally, the team is looking out for any potential supply-side driven inflation risks, arising from escalating tensions in the Middle East.

Asset Allocation: Staying tactically defensive due to expected volatility and potential data disappointments

Given the upcoming US election, the release of the October US employment report, the Fed meeting in early November, and escalating geopolitical tensions in the Middle East, we anticipate heightened market volatility to persist in the near term. Moreover, global equity valuations remain lofty and are vulnerable to data disappointments. While US economic data has been resilient, we believe that the risk of a recession is currently undervalued. As such the team is adopting a more cautious tactical stance for risk assets over the 3-month horizon.

Over the longer-term horizon of 12 months, the team has a greater preference for government bonds, especially US Treasuries, over risky assets (e.g., equities, high yield), in line with late economic cycle dynamics and the asset class’s appeal in the event of a recessionary environment.

Asset Allocation: Staying

Datasource: Multi Asset Portfolio Solutions team. Asset class views are as of the team’s most recent monthly meeting in early October 2024 and should not be taken as a recommendation.

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