Summary
Eastspring’s Multi Asset Portfolio Solutions team expects moderating inflation, decelerating growth, and an easier monetary policy in the second half of 2024. This should be positive for high quality bonds. Given the attractive levels of current bond yields, the team has begun entering long duration government bond positions.
This is an extract of our Q3 2024 Market Outlook. Click here to download the full report which includes a special feature “Copper: The red metal is poised to rise”.
Macro: Outlook Moderating global growth and disinflationary forces pave the way for a Fed pivot
The global economy has been expanding steadily for the past eight months, as shown by the J.P. Morgan Global Composite Purchasing Managers’ Index (PMI) Output Index. However, this momentum showed signs of easing in June where the PMI for new export orders, which proxies export demand, fell into the contractionary territory, which is marked by a below 50 reading.
Global Purchasing Managers’ Index (PMI)
Source: LSEG Datastream, 14 June 2024.
Inflation in the US showed signs of easing in the second quarter. Both headline and core Consumer Price Index (CPI) readings generally softened, leading to a decline in the Citi Inflation Surprise Index, which measures whether inflation is beating expectations.
Citi Inflation Surprise Index (US, G10)
Source: LSEG Datastream; Citigroup. 28 June 2024.
Softer US CPI data in the second quarter and potential softening of the labour market (which could ease wage inflation), may now prompt the Fed to start cutting rates soon. The Fed seeks to avoid being too slow to cut rates in order to maintain policy credibility. Otherwise, it risks having inadequate rate cuts during a meaningful growth slowdown phase, potentially leading to a recession.
Asset Allocation: Staying “risk-on” for now
Over the shorter-term tactical horizon, gradually moderating inflation and benign (yet still positive) growth can continue to support risk assets, with US equities being our favoured equity position, as it continues to benefit from relatively strong earnings. In our view, US consumer spending, which is a key driver of US growth, and ultimately global growth, will eventually decelerate more meaningfully as key sources of consumer spending such as excess savings from the pandemic, wage income and consumer credit growth, for example, start to fade. To this end, the team is prepared to be more defensive on risk assets, such as equities, over the 12-month horizon.
Datasource: Multi Asset Portfolio Solutions team. Asset class views are as of the team’s most recent monthly meeting in July 2024 and should not be taken as a recommendation. 3m = 3-month view. 12m = 12-month view. The information provided here is subject to change at the discretion of the Investment Manager without prior notice
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).