Monthly Review - October 2023

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November 3, 2023

Our Perspective

From a macroeconomic perspective, coincident indicators continueto point to a soft landing, whilst leading indicators remain in the red. In theUS, ISM services data and non-farm payrolls are weakening, whilst wage growthand excess savings continue to slow. Alongside a stagnant housing market andthe significant contraction in money supply, we expect both inflation andeconomic growth expectations to deteriorate in the fourth quarter and into2024. Rising energy prices however will start to contribute to higher CPI dataagain.

We’re seeing similar trends in the UK and Europe, althoughrealised inflation in the UK remains stickier. This is in part due to recentSterling weakness since mid-July, exacerbating import prices in food and coregoods and services. As for economic growth, Europe has practically come to ahalt. Consumption is stagnating, house prices are in decline in most majoreconomies, and survey data are guiding towards a contraction. Despite a robustlabour market, in the face of significantly tighter lending standards and ahigher cost of capital, a deterioration in economic activity and a widerrecession seems unavoidable.

Japan might be the outlier, and a market we retain significantconviction in. The housing market seems stronger than ever whilst servicesremain robust. The risks are perhaps a policy error from the BoJ as inflationremains elevated whilst they continue with yield curve control and in QE mode.China on the other hand is more problematic. We remain cautiously optimistic asconsumption continues to rebound. Major risks to China are a global recessionimpacting net-exports and the continued uncertainty arising from a localhousing market crisis.

In conclusion, our factor quadrant sets out where we believe weare moving towards in the economic cycle. Today, we expect the market to becomemore pessimistic on economic growth whilst inflation continues to decline.

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LeifBridge is a trading name of Shard Capital Partners LLP. Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office:36-38 Cornhill, London, EC3V 3NG.. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.

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