Text on screen: Nicola Mai, Economist
Mai: I think the global economy led by the U.S., has shown a remarkable resilience at the start of the year and that that has raised some questions about the effectiveness of monetary policy. Is monetary policy still working? And in our mind it still is. But there might be a lag here compared to previous experiences.
So if we look ahead, I think growth has peaked and we see resilience turning into weakness as we move into 2024. I also see a peak in inflation. I think by now it's quite clear that inflation is past the peak in both headline and core terms. Obviously, it's coming out at different speeds in different regions, but I think it is on the way down in Europe and in the U.S. we see core inflation in the 2.5% to 3% area at the end of next year.
Text on screen: Andrew Balls, CIO Global Fixed Income
Balls: The outlook for fixed income looks compelling given what Nicola has said, that we're past the peak in terms of growth, past the peak in terms of inflation, and then the starting level of yields is very attractive. So a compelling outlook for fixed income. Secondly, we would emphasize the broad opportunity set, the benefits of diversification. And you know, we are at different points in different cycles and so we think there's going to be good cross country opportunities.
We see non-agency mortgages, structured credit, broadly across countries as offering a good opportunity. We could be fairly careful in terms of corporate credit, but we'll see good opportunities for securities selection and we'll have a bias for up in quality, up in liquidity position.
In terms of currencies will be broadly neutral in terms of the U.S. dollar at this stage in the cycle. But we'll look to implement strategies which look to generate income or carry in terms of FX positioning and we'll have some exposure to high quality EM currencies as well, as part of that strategy.
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