JPMorgan says soft landing, no recession, base case for global economy

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A soft landing will be the most likely scenario for the global economy, according to strategists at JPMorgan Chase & Co.

Recent data pointing to moderating inflation and wage pressures, accelerating growth and stabilizing consumer confidence suggest the world will avoid a recession, a team including Marko Kolanovic and Nikolaos Panigirtzoglou wrote Monday. Markets could benefit from fiscal stimulus in China, energy support plans in Europe and very low investor sentiment, they said.

“Economic data and investor positioning are more important factors in risk asset performance than central bank rhetoric,” the strategists wrote. “We maintain a pro-risk attitude.”

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Positive sentiment has returned to markets in recent days amid hopes that inflation may have peaked, at least in the US. On Monday, the MSCI AC World Index completed its best four-day gain since May, as traders were primed for key US consumer price data on Tuesday.

JPMorgan argues that a gradual easing of inflation should be positive for cyclical stocks and small cap names, which it prefers over “expensive” defensive stocks along with emerging markets and Chinese stocks. It advocates buying the dip in energy stocks and keeps an ‘aggressive’ overweight in commodities.

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“We argue that inflation will subside on its own as the disruptions fade and that the Fed overreacted with a 75 basis point hike,” the team wrote. “We will probably see a Fed pivot, which is positive for cyclical assets.”

Strategists are positive on the dollar and expect US and European bond yield curves to flatten.

JPMorgan is not alone in his opinion.

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Existing data suggests a soft landing where the global economy is headed, Isaac Poole, chief investment officer at Oreana Financial Services Ltd, said in an interview. “In that scenario, we actually think earnings could be relatively good in the US next year.”

Earnings growth “could positively surprise as there is a lot of pessimism ingrained.”


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