A just-published report examined the key investment issues impacting global financial markets, and updated our investment strategy and recommendations. We remain more upbeat on global economic prospects than the consensus, and have consistently leaned against the tendency to worry about an approaching recession. Like the fabled Godot, a global recession never seems to arrive.
A recession will eventually develop, but not unless a major financial accident erupts or, more likely, global monetary conditions finally become restrictive for the weakest global economic sectors/countries. The latter is not yet an imminent threat and, ironically, global stock/bond ratios agree with our assessment.
The implication is that DM central banks will have to raise policy rates higher and keep them higher for longer than both they expect and bond investors currently are discounting. We anticipate that next year’s expected policy rate cuts will unwind as global growth proves resilient over the balance of the year, and DM government bond yields will punch out to new cyclical highs before much longer. Net: stay bearish on bonds, and stay tuned.