Mid-Year Outlook 2023: Insights from JP Morgan Research Experts

Research Recap | Mid-Year Outlook 2023

In a recent episode of Research Recap’s “Making Sense” on JP Morgan, experts from J.P. Morgan Research provided insights into the global economic outlook for the second half of 2023. Chief Global Economist Bruce Kasman discussed the possibility of a recession and the outlook for inflation. He emphasized the resilience of the US and global economies, stating that while inflation is declining, it is unlikely to fall below 3% this year due to lasting supply chain disruptions and shifting inflation psychology.

Kasman also highlighted the tension between inflation and economic resilience, noting that the timing of a recession is uncertain. He predicted a baseline forecast for a US recession by the end of the year but acknowledged the broad window of possibility for this timing.

In terms of risks for the second half of the year, Kasman pointed to the potential for a more significant downside pressure on economic activity, elevated inflation, and financial market shocks. He emphasized the need to monitor the manufacturing sector’s weakness and the impact of central bank policies on the global economy.

Moving on to U.S. Rates Strategy, Co-Head Jay Barry discussed the Federal Reserve’s tightening cycle and its impact on interest rates. He predicted a gradual decline in yields over the second half of the year but noted that the scope for this decline would be limited compared to previous post-tightening cycles.

In the international rates and fixed income markets, Head Fabio Bassi highlighted the positive outlook for bonds as central banks approach the end of their tightening cycles. He emphasized the need for tactical positioning in response to changing central bank policies and regional economic dynamics.

Global Head of Credit, Securitized Products, and Public Finance Research, Stephen Dulake, discussed the performance of credit markets in the first half of the year and the potential for decompression between high-grade and high-yield assets in the second half. He also noted value opportunities in securitized products compared to unsecured corporates.

In the commodities markets, Head Natasha Kaneva discussed the impact of an imminent recession on commodity prices and investor positioning. She highlighted the potential for positive returns in energy, metals, and agriculture commodities, driven by supply-demand dynamics and policy changes.

Head of EM Local Markets and Sovereign Debt Strategy, Jonny Goulden, shared insights into the late-cycle growth and inflation slowdown in emerging markets. He emphasized the potential for rate cuts and the impact of central bank policies on local currency bonds and currencies.

Global Asset Strategy Head Tom Salopek discussed the expected returns for various asset classes over a three-to-five-year horizon. He highlighted the impact of the end of the hiking cycle and the shift in growth policy tradeoffs on equity markets.

Finally, Global Equity Strategy Head Mislav Matejka discussed the outlook for equity markets in the second half of the year, emphasizing the potential for a change in the growth policy tradeoff and the continued outperformance of growth over value stocks.

Overall, the experts provided a comprehensive overview of the mid-year outlook for various asset classes and regions, highlighting key themes, risks, and opportunities for investors in the second half of 2023.