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Fading macroeconomic tailwinds
The lively debate around whether the US will face a recession is seemingly never-ending. We have previously zoomed in on the strong consumer and resilient job markets that have propped up the US economy.
A closer look at key economic indicators shows a stark contrast between leading ones (predicting future changes in the economy) and coincident ones (reflecting the current state of the economy). While the Leading Economic Index fell for the 17th consecutive month in August, indicating a challenging growth period and a possible recession ahead, the Coincident Economic Index climbed. We reiterate our view that the macroeconomic headwinds are not just already in place but will increase.
Another lingering question among investors is when the US Federal Reserve will end the most aggressive interest-rate hikes in four decades. We believe it’s nearing the finish line and that US interest rates are now sufficiently restrictive to bring inflation back down to the 2 percent target.
We feel comfortable with our asset allocation and refrained from making any changes for now.
The monthly CIO update analyzes the current market environment and delves into the economic backdrop. Michaela Huber, Cross Asset Strategist at Vontobel Multi Asset, and Christopher Koslowski, Senior Fixed Income & FX Strategist at Vontobel Multi Asset, discuss the trends.