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.
In addition to polling our investors, we’ve asked some of our macro and other experts to share their thoughts for 2023. Explore their Investment Outlook.
Experts
Still waiting…Fed wants more data before cutting policy rates
Continue readingAre US election probabilities now a critical driver of bond yields?
Continue readingURL References
Related Insights
Stay up to date with the latest market insights and our point of view.
Trump 2.0: US election market impacts
In the wake of the US election, macro strategists Juhi Dhawan and Michael Medeiros join host Thomas Mucha to discuss the market, policy, and geopolitical implications of Trump 2.0.
What is “the economic cycle,” anyway?
See why the relationship between asset prices and the economic cycle is more complex than you might think, why a US recession is unlikely, and what a more dovish Fed could mean for the US and global markets.
Bonds in Brief: Making Sense of the Macro — August issue
What's driving global bond markets and what are the investment implications? Read the August issue of "Bonds in brief" for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
Time to capitalise on the evolving role of bonds?
We outline why we think the new economic era is elevating the role of bonds as a source of attractive and stable income, downside protection and portfolio diversification.
Bonds in Brief: Making Sense of the Macro — July issue
What's driving global bond markets and what are the investment implications? Read July's issue of Bonds in Brief for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
Still waiting…Fed wants more data before cutting policy rates
Our expert dives into Fed policy following the July FMOC meeting.
Are US election probabilities now a critical driver of bond yields?
Our expert argues that the US election remains a critical catalyst for the bond market given the contrast between both parties as it relates to supply side policies such as trade and immigration, and to policy differences around taxation and regulation.
Breaking concentration: big picture thinking with small-cap equities
How to overcome the risks associated with today's concentrated market? Investment Director John Mullins explores why small-cap equities could be part of the answer.
Bonds in Brief: Making Sense of the Macro — June issue
What's driving global bond markets and what are the investment implications? Read June's issue of Bonds in Brief for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
All-time highs and CPIs: What comes next?
Global fundamentals have kept markets content so far this year, but will politics sour the mood? Members of our Investment Strategy & Solutions Group offer their views on the second half of 2024, including on equities, bonds, and commodities.
Bonds in Brief: making sense of the macro — May issue
What's driving global bond markets and what are the investment implications? Read the May issue of Bonds in Brief for Wellington Investment Director Marco Giordano's monthly assessment of risks and opportunities within bond markets.
URL References
Related Insights
