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The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
Our latest quarterly snapshot of sentiment among Wellington’s investors suggests a relatively bearish tone among the 100 or so survey participants, driven by concerns about further inflation surprises, particularly in Europe, as well as the potential for a more severe economic downturn. Specifically, given still surging eurozone inflation, we asked participants about their expectations for the region’s inflation rate by the end of 2023. While our respondents anticipate a significant moderation from current inflation levels in the eurozone, nearly three-quarters forecast inflation of more than 3.5% (Figure 1), above the current Bloomberg consensus of 3.4%. This stickier inflation outlook also led our participants to take an above-consensus view on the level of German 10-year bond yields in 12 months’ time.
In light of the recent events in the UK, we also asked participants to name the region, country, sector or industry group that they expect to be the “problem child” of 2023. Unsurprisingly perhaps, given the above-consensus view on European inflation and yields but also the vulnerability of the region to Russia’s aggression, 22% of our respondents view Europe as the top “problem child”. However, a sizeable number of participants also worry about Japan and China/Taiwan, with both coming a close second at 19%. From a sector perspective, housing and technology were rated the top two “problem” areas and a large proportion of respondents (64%) expect US house prices to decline by 5% or more in 2023.
Wellington’s recurring macro survey originated from a conversation three of our macro thinkers had over six years ago about Philip Tetlock and Dan Gardner’s book Superforecasting. Tetlock and Gardner argue that forecasting is a skill that can be improved, and we thought their theory could work well in practice at Wellington, given the firm’s collaborative culture. The hope was to sharpen our collective and individual forecasting skills, enhance our internal investment dialogue, reveal where our views differ from the market consensus and identify how they change over time. The resulting internal survey gathers the anonymous responses of macro-minded investors across all disciplines, asset classes and office locations. The precise formulation of the questions is important. Wherever possible, our questions aim to be precise, time-bound, measurable, probabilistic and rollable from one quarter to the next so as to give us a richer data set over time. We think the results can pinpoint where the firm’s views differ from the consensus and can also reveal important shifts in our collective thinking.
US regional banking sector updateContinue reading
Economic and market forecast in six chartsContinue reading
Commercial property values shrinking? No problem for big citiesContinue reading
Why cash won’t cut it for long: The case for bondsContinue reading
US loses its AAA rating (again)Continue reading
Chair Powell maintains optionalityContinue reading
The great American labor shortage: Causes, consequences, and solutionsContinue reading
US regional banking sector update
We explore how banking regulation and legislation could impact US regional banks, including highlighting the potential for M&A activity and for dispersion to drive long/short opportunities.
Economic and market forecast in six charts
This visual summary of Wellington Management’s 2023 Outlook captures insights on economic and market forces shaping investment results from specialists from across our investment platform.
Commercial property values shrinking? No problem for big cities
We analyze the impact of declining office property values and outline the reasons why they believe large cities should be able to weather the storm of shrinking commercial property value.
Why cash won’t cut it for long: The case for bonds
Global Investment and Multi-Asset Strategist Nanette Abuhoff Jacobson and Investment Strategy Analyst Patrick Wattiau explore the relative potential benefits of bonds versus cash.
US loses its AAA rating (again)
US Macro Strategist Michael Medeiros analyzes Fitch's recent downgrade of US credit quality and explores the bigger issues at play.
Chair Powell maintains optionality
Fixed Income Analyst Caroline Casavant shares what she thinks matters most for investors in light of the latest interest-rate hike from the Fed.
The great American labor shortage: Causes, consequences, and solutions
Shifting demographics suggest that US labor markets will remain tight in years to come, with major implications for income inequality, investment spending, and government policy.
A test for the global economy
What are the similarities and differences between the US regional banking crisis and 2008's global financial crisis? How likely is a recession? Should investors be focusing on value or growth? In this podcast, Macro Strategist Nanette Abuhoff Jacobson shares her interpretation of where the economy is headed, outlining where the risks and opportunities may lie for investors in the next 12 months.
State of the credit markets: Does cash rule everything around us?
Fixed Income Portfolio Manager Brij Khurana outlines the state of the credit market today, compares historical periods of quantitative easing, and warns credit investors of cash scarcity in the near future.
New market regime, a new environment for global equities?
Global Equity Strategist Andrew Heiskell characterizes the new market regime, makes a case for shelving the old investment playbook, and shares potential investment implications for equity markets.
Fed skips along the path to a pause
Jeremy Forster analyzes the Federal Reserve's decision to pause its interest-rate hiking cycle, explains why he believes it could be an extended pause, and shares the potential implications for fixed income markets.