Interest rates in the USA and the Eurozone are at or near their peaks, and global economic growth is eroding. US government bonds appeal to us as investments. We foresee modest growth but increased volatility in terms of global stocks. Our preference is for high-quality stocks in the energy, healthcare, and technology industries. Bond investments are appealing given the current yield levels, particularly in the corporate bond market, where we exercise caution and favor bonds with a BBB rating.
Economy
In 2023, it’s anticipated that the US economy will continue to develop at a pace akin to that of 2022. But a number economic indicators, including as a slowing labour market, falling corporate earnings, and rising real interest rates, point to a recession.
Bonds
After raising interest rates in July, the U.S. Federal Reserve decided to hold them unchanged in September. We’re expecting additional information, but we expect a slower pace of hiring and fewer pricing pressures, which point to no rate hike in the near future. Strong economic data may be to blame for the recent decline in the value of US bonds. We consider U.S. Treasury bonds to be appealing in light of the anticipated economic slowdown. Considering further inflation reduction, the ECB Governing Council indicated that the interest rate peak has been reached. Maintaining the existing interest rates should therefore assist in meeting the inflation goal. German Bund rates have increased as a result of U.S. direction, despite worse economic data. Long-term yields will be dropping, while short-term yields will be constant.
Currencies
The Eurozone anticipates a modest rebound in the Eurozone and a decline in the U.S. economy.
