What is the current outlook for global markets?

In this column, my objective is to take the reader around the world to discuss the business, economic, and financial mega-trends that are top-of-mind for executives, investors, and policymakers.


Jerome Powell, the Chair of the Federal Reserve is flexing his interest rate muscles, reaffirming that the central bank is on a mission to tighten policy. What’s the quantum? Another ½ percentage point at each of the next two meetings…

But the trillion-dollar question is whether the Fed can dodge the recessionary bullet as the odds of a soft landing reduce… My take? The Fed is playing catch up – but they won’t go all the way to 3.5% so quickly and will pause before. And that ‘surprise’ will open up opportunities for us as portfolio managers. Everybody thinks you can’t make money investing in fixed income – this, my dear reader, is not true.

What is clear is that Powell is not alone. Other members of the Fed are coming out and telegraphing their support for this intentional tightening of financial conditions as they play catch up to fight off significant inflationary pressures in the US – so the path is clear.

How will this impact markets? Economists are reducing their forecasts for US growth, such as Goldman, from 2.6% down to 2.4% this year. What about equity strategists? They are recommending to ‘stay invested’ because the labour market is still strong. Okay, they have been ‘long and wrong’ year-to-date, but I suspect they will be vindicated eventually as it’s very difficult to have a US recession with such high demand for labour, as evidenced by the vacancy to unemployed ratio (for every unemployed there are 1.9x vacancies – almost double the historical average).


The bad news? Inflation is sky-high. The good news? Retail sales unexpectedly rose in April. What was prominent on shopping lists? Supermarkets reported bumper sales of alcohol, which could mean a couple of things: Perhaps we were stocking up for the Jubilee celebration; or maybe we were planning more house parties, as opposed to nights out at the pub; or perhaps consumers got depressed after reading too many economic forecasts citing macro headwinds! I am going with option two.

But in all seriousness, in the face of the real price pressures, a strong retail sales number is encouraging, especially on the heels of all the doom and gloom we are hearing from policy makers such as Andrew Bailey and his recent comments on food prices.

What does the National Institute of Economic and Social Research have to say on inflation? They believe that the BoE is going to have to hike rates to 2.5% and keep them there until the middle of the decade to bring inflation under control. I’m always a bit sceptical about long-term forecasts but your mind is like a parachute… it works better when open.

In brighter news, house price growth was still circa +10% from a year ago and unemployment fell to its lowest rate in nearly half a century, as the number of job vacancies rose to a new high of 1.3m.


Gregory Perdon

Gregory Perdon

Weaponising energy?! That’s President Putin’s plan as Russia’s state-owned gas supplier has said it will cut shipments to Europe. This has fuelled one of the biggest questions on European investors’ minds: What happens if there are serious disruptions to energy flow? The cold-hard unwanted response is that growth would falter and energy prices would rise again. And if inflation rises too much then the ECB would need to act by hiking rates more aggressively, which would tighten financial conditions.

Perhaps this is the reason Brussels has sadly given the green light for the EU to burn more coal over the next decade as it tries to wean itself off Russian gas and oil. So much for net zero in the short term which is a real tragedy.


An early exit from QE and the end of easy money in Japan? I doubt it. According to the deputy head of the Bank of Japan, the rate setter must maintain current monetary stimulus to create sustainable increases in prices, corporate profits, jobs, and wages. If only it were that simple…

And on the COVID re-opening, Japan intends on relaxing its COVID border restrictions from 1 June by doubling the cap on daily international arrivals which could give a helpful uptick to the economy if the trend continues.

As for China, with special thanks to their zero-COVID policy, the recent economic data has not been brilliant. Retail sales in April shrunk 11% and auto sales plunged almost 50%. But Fixed Asset Investment (FAI) – which Beijing is counting on to save the day as exports lose momentum – still rose circa 7% in the first four months.

In addition, more monetary magic seems to be on its way as mortgage rates were just reduced, which might hopefully help the struggling property market.

We have been talking about fiscal and monetary stimulus and it’s starting to come, but we need to remain mindful of the time lag to market.

Finally, analysts at J.P. Morgan have turned positive on certain Chinese internet stocks – after only a few months ago calling the sector ‘un-investable’. A bear market rally or a phoenix rising? Now that’s a good question…