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Many of the themes we covered in June’s update remain intact throughout July, such as economic data remaining resilient. We also saw key developments, including:

  • the likelihood of US recession continues to be pushing into 2024
  • unemployment in the UK and US is historically low
  • US headline inflation below expectations at 3%[1]
  • Disinflation is evident in the US

Following from the inflation theme, UK headline inflation remains sticky at 8.7%, with marketing pricing another 0.75% interest rate increase from here, an example of the de-synchronisation in monetary policy[2].

We continue to see signs of earnings expectations bottoming and gaining some positive momentum in the US & Japan.


Economic Growth:

Economic growth indicators are stronger than expected.

Examples in the US include:

  • The Atlanta Fed GDP Nowcast model running at +3.5%[3]
  • Unemployment at 3.6% and annual wage growth of +1.2%[4]
  • Falling producer prices and continued strength in global services sector
  • Manufacturing has strengthened but remains in contraction territory (the opposite of expanding economy)
  • Capital spending plans remain firm

All-important indicators, helping to defy economic recession including the inversion of the US Yield curve. The UK has narrowly avoided a technical recession whilst Europe has been dragged into one by a slowing German manufacturing sector. We believe US recession risk has been pushed into 2024 due to services sector resilience.

Economic growth data in the UK has been marginally stronger than expected. With monetary policy likely to remain tighter for longer to tackle inflationary challenges, this presents a headwind to growth.

Chinese data continues to disappoint relative to expectations, but nominal and real growth are high relative to developed markets.


Financial and Credit Conditions:

We expect credit availability to become more restrictive and a substitute for aggressive Fed tightening to cool inflation.

Examples include:

  • The NFIB Small Businesses Survey indicated the average interest rate for businesses short-term loans increased to 9.2%, the highest level in 16 years[5]
  • The Bank of England Credit Conditions Survey guides to a lower demand and supply of credit for Q3 of 2023[6]



We anticipate the trend of global headline disinflation to continue, with factors broadening from just base effects.

In the US, current annual headline CPI inflation came in below expectations at 3%, providing encouragement that US inflation is moving closer to target [7].

Core inflation also surprised to the downside, with annual Core CPI at 4.8%. Housing costs are still not falling meaningfully. We expect Core CPI to be stickier. This theme of stickier Core inflation is not limited to the US, similar trends are experienced in the UK and Europe[8].

In Japan, annual inflation is at 3.3%, placing pressure on the Bank of Japan to evolve its ultra-loose monetary policy[9].



We are seeing a positive trend forming in earnings expectations, giving greater confidence we may have seen a bottom in US earnings[10].

In Japan, earnings expectations are being driven higher by a weaker currency and better nominal growth. A push to make Japanese companies more shareholder friendly, through better governance and liquidity is welcome[11].


Asset Valuations:

From a yield perspective, more compelling opportunities exist in sovereign bonds and credit. However, credit spread valuations are tight (20 year look back), hence limited appetite from True Potential Investments nor our managers to add at this point.

Within equities, the valuation opportunity is in Europe, UK, China and Japan.

Market cap weighted US equities, look expensive compared to history. This has been exacerbated by the year-to-date rally in a highly concentrated pocket of the market, on an equally weighted basis closer to fair value.


Opportunities for growth.

Given the blend of stronger economic data, lower recession probabilities and pockets of valuation opportunity, we are constructive on equities.

Equity market leadership has broadened out over the month, away from the concentrated rally in US companies closely linked to A.I.

However, should a deterioration in economic growth occur, encouraging central banks to ease interest rates, we hold a slight overweight to duration, through global government bonds for their defensive characteristics. High yield bonds remain unattractive with spread levels tight compared to history and potential for higher default rates.

This article is not a personal recommendation or financial advice and the forecasts provided are not a reliable indicator of future performance.


[1] Bloomberg L.P. (July 2023)

[2] Bloomberg L.P. (July 2023)

[3] Bloomberg L.P. (July 2023)

[4] Bloomberg L.P. (July 2023)

[5] Bloomberg L.P. (July 2023)

[6] Bloomberg L.P. (July 2023)

[7] Bloomberg L.P. (July 2023)

[8] Bloomberg L.P. (July 2023)

[9] Bloomberg L.P. (July 2023)

[10] Bloomberg L.P. (July 2023)

[11] Bloomberg L.P. (July 2023)

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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