Look around and that long awaited recession just hasn’t come, not in the U.S., and not many other places either, with the International Monetary Fund on Tuesday saying it was no longer forecasting a recession in the U.K. “In the face of powerful shocks –including the continued effects of the Russia-Ukraine war, high inflation, surging central bank policy rates, and (more recently) the emergence of banking sector stresses — the global economy continues to move forward,” says Nathan Sheets, Citi’s global chief economist, in a note forecasting 2.4% global growth this year and 2.1% next year.
Another banking giant, HSBC, arrives at a similar conclusion about the economic backdrop — and that is the basis for its optimistic take on stocks and other risky assets. “Continued subdued sentiment and positioning is just one of many factors that keep us risk-on in our tactical asset allocation,” say strategists led by Max Kettner, chief multi-asset strategist at the bank. Here’s its argument. Looking at purchasing managers index data for manufacturing, new orders minus inventories for key areas including the U.S., the eurozone, Taiwan and Sweden are improving. Financial conditions also have improved, thanks to falling volatility, a declining U.S. dollar, a dip in U.S. Treasury yields and stabilization in credit spreads.
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