The fight against inflation comes at a price
Macroeconomic update for September 2023
Summer break is over, but the recession debate has given no pause. While consumers are still happily spending and the US labor market has proven surprisingly robust, fighting inflation does come at a price. Central banks’ policies aren’t precision tools—and the quick and aggressive interest-rate hikes take a while to work their way through the economy. We continue to work under the assumption that there will be a recession, with signs of initial jobless claims being on the rise and global economic activity poised to cool further.
On our end, we do have a precision tool at hand: our asset allocation matrix. And we’ve decided to reduce risk in a number of ways, including taking our cash position up a notch, trim our equity position to neutral from overweight (while finetuning within the asset class to become more defensive).
The monthly CIO update analyzes the current market environment and delves into the economic backdrop. Dan Scott, Head of Vontobel Multi Asset, and Frank Häusler, Chief Investment Strategist at Vontobel Multi Asset, discuss the trends.
Key Takeaways
- Recession likely to arrive around year-end
We’ve seen the pressure in the real-estate market, then the stress in the banking system and credit defaults are expected to increase. Over time, the labor market won’t be spared. - Global economic activity to worsen
As almost all of the world’s central banks have hiked interest rates, global economic activity is likely to weaken further from here on out. - Taking a more defensive stance
We have decided to reduce risk. Within the equity asset class, we are overweight US and Swiss stocks, while cutting emerging-market equities to neutral and Eurozone stocks to double underweight.
