CoreMacro

The pandemic gave older Americans and Brits a massive carrot and stick to retire early. The carrot being a surge in wealth, the stick being a risk to health. In other major economies, the carrots and sticks were smaller or non-existent. Hence, the shortage of older workers, and the resulting wage inflation, is a specific US and UK problem. We go through the important economic and investment implications for 2023.

Special Report

China’s infrastructure investment growth rate will likely slow from its current nominal 14% to 4-6% in 2023H1, on a year-over-year basis. Funding constraints and a shrinking pool of good projects will cap the upside in China’s overall infrastructure fixed-asset investment (FAI) in the next six months.

Labor market strength and consumers’ evident willingness to dip into their pandemic savings keep our optimistic consumer thesis intact. We remain tactically overweight equities.

European inflation will decline through 2023, which will greatly help households and consumption. But can European inflation remain low after that?

Is China completely abandoning its dynamic zero-COVID policy? When will the economy start recovering? What are the implications for Chinese stocks and China-related assets? Have authorities provided enough financing to property developers? Will developers be able to repay these loans and, if not, who would bear the cost of potential defaults? What should be the strategy for Chinese onshore rates and the RMB?

Special Report

Web 3.0 plays will boom in the coming decade. Play this through a diversified exposure to today’s main blockchain tokens. But the Web 2.0 oligopolies, like Amazon and Meta, are in big trouble.

European asset prices have rebounded sharply since September. Can this trend survive in the face of a weak Chinese economy where deflation prevails?

Crypto broker FTX’s bankruptcy does not pose a systemic threat to markets. It did reveal something deeply unflattering about excess liquidity, however, and suggests that other private investments may come a cropper.

Special Report

Long-term deflationary forces in Japan are weakening, setting the stage for inflation to make a comeback over the remainder of the decade. Investors should prepare to structurally reduce exposure to Japanese bonds starting early next year. Higher Japanese bond yields will lift an extremely undervalued yen. To the extent that global growth should surprise on the upside over the next 12 months, Japanese equities could see some modest outperformance.

Excess job vacancies in the US and UK reflect a labour market that cannot efficiently match unemployed workers with vacant jobs. This is because excess job vacancies reflect the shortage of labour supply in the 50 plus age cohort, whose skills are difficult to replace. In economic jargon, the post-pandemic ‘Beveridge curve’ has shifted outwards. Absent an unlikely shift in the Beveridge curve to its pre-pandemic version, killing US wage inflation will mean killing jobs. And killing jobs will mean killing profits. We go through the investment implications.