The Global Outlook is the flagship quarterly publication from Markets 360, Global Markets’ team of economists and strategists looking at the key drivers and themes across all assets in the months ahead.
The seven main takeaways for the year ahead are:
Recession ahead
The Markets 360 team expects a downturn in global GDP growth in 2023, led by recessions in both the US and the eurozone, with below-trend growth in China and many emerging markets. Despite a likely steep fall in inflation next year, they think stubborn price pressures are set to keep the US Federal Reserve and the European Central Bank hiking into a recession in Q1 2023.
U-turn in bonds
Q1 2023 should be a turning point for US and eurozone government bond markets, the analysts believe, due to peaks in both central-bank policy rates and net supply net of quantitative easing/quantitative tightening. For emerging-market rates, idiosyncratic factors are likely to become increasingly important, especially following the peak in global rates.
USD staying in drive, then braking
Risk-off market moves should provide safe-haven support to the USD during H1 2023, but the team sees it ending 2023 at weaker levels than at present.
Credit shifts gears
The Credit 360 team sees a transition from ‘rates risk’ to ‘ratings risk’ in 2023, with weaker fundamentals not yet in the price.
Equities on a bumpy road
Equities will hit new lows in 2023, the analysts expect. While the 2022 correction has been mostly valuation-driven, 2023 will be all about earnings, supporting higher realised volatility.
Recession fears overtake oil supply concerns
The oil market is set to loosen in Q2–Q4 2023, and the Markets 360 commodities team has cut its price forecasts.
Sustainability speeds up
Global green bond issuance will recover to 2021 levels in 2023, the team believes, thanks largely to Europe’s consistency and China’s rising issuance.
As policy rates approach their peaks in 2023, we anticipate a shift in the market focus from policy tightening to its impact on activity. Our base case is for a global downturn, with inflation slowing, but not enough to fully reassure central banks it will sustainably return to target. Hence we expect investors to rotate into global fixed-income markets as earnings-driven risk assets base, and a fundamental-driven downturn in credit with dispersion, downgrades and defaults.
Luigi Speranza
Head of Markets 360 and Chief Economist
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