Global macro outlook
Fed goes big but volatility ahead
Fidelity Solutions & Multi Asset
Global Macro and Strategic Asset Allocation Team
September 2024
For investment professional use only and not for general public distribution
Global macro outlook
Fed goes big but volatility ahead
▪ Our scenario probabilities for the end of 2024 remain unchanged: 55% for a soft landing, 30% for a cyclical recession, 10% for no landing, and 5% for stagflation.
▪ The economic environment continues to show soft landing dynamics as both activity and inflation cool. There is a divergence within regions with the US
disproportionately driving both the strength and the risks associated with the health of the economy. However, financial conditions have eased again and are acting
as tailwinds for growth.
▪ The Fed started its easing cycle with a big 50 bps move, catching up to other G3 central banks. The rate trajectory indicates a series of cuts back to a neutral rate,
however the Fed has opened a Pandora’s box with markets expecting a more aggressive pace of cuts in the future.
▪ We broadly agree with the market pricing of a terminal range of around 3% but disagree with the pace at which we arrive there given a still resilient and less
sensitive to rates economy and risks around election outcomes.
▪ In contrast to the Fed, we expect the ECB and BOE to continue to adopt a more gradual easing cycle given they are still grappling with relatively stickier wages and
services inflation. While the European growth outlook remains concerning in the near term, particularly in Germany, the performance of the UK economy has been
better than expected.
▪ In Asia, a wage-inflation virtuous cycle is taking shape in Japan that is boosting consumption demand and will give the BOJ more room to gradually hike the policy
rate towards neutral. In China, there are more downside risks to our base case of “controlled stabilisation”, as domestic demand remains lacklustre. Divergent
growth patterns persist with exports outperforming while the property sector struggles to stabilise. More forceful fiscal easing to support domestic demand is crucial
for China to meet its annual growth target.
▪ Political risks continue to contribute to uncertainty in the outlook and market volatility. The upcoming US elections in November and the ongoing geopolitical conflicts
are the primary sources of potential shocks that we are monitoring, particularly their effect on energy markets, trade, and fiscal policy.
▪ Tactical asset allocation view: We have adopted a more neutral stance on equities given heighted political risks and less positive signals from our quant
indicators. We are cautious on government bonds as we believe the market is pricing a faster Fed easing cycle than will materialise. We prefer to hold some cash as
dry powder while waiting for investment opportunities.
Source: Fidelity International, September 2024.
2
2024 Global Macro & Investment Outlook
2024 Growth forecasts
Our global risk assessment remains balanced, and we expect a solid global expansion this year. We are
constructive on Brazil vs consensus, while we see downside risks to Mexico and Turkey
2024 Growth
BBG Consensus*
Fidelity Upside Case
Fidelity Downside Case
Risk Assessment vs Consensus
Global
3.5
3.9
2.8
Balanced
Developed Markets
1.5
1.8
1.5
Balanced
US
2.5
2.8
2.5
Balanced
Eurozone
0.7
0.8
0.6
Balanced
UK
1.1
1.2
1.0
Balanced
Japan
0.0
1.3
0.5
Balanced
Emerging Markets
4.9
5.3
3.7
Balanced
China
4.8
5.0
3.5
Balanced
India
6.9
8.2
5.5
Balanced
Brazil
2.2
2.4
1.5
Upside
Mexico
1.8
1.8
1.0
Downside
Turkey
3.2
3.0
2.0
Downside
Indonesia
5.0
5.3
4.8
Balanced
Source: Fidelity International, Bloomberg, September 2024. Note: these scenarios and risk assessment are not intended to be exact growth forecasts, but rather illustrations of potential outcomes based on particular assumptions about a number of
variables, including supply side risks, monetary and fiscal policies and associated multipliers, corporate and consumer behaviour. Given significant uncertainties related to how the cycle might evolve, these scenarios are subject to change. DM, EM
and global aggregates are calculated including only countries that appear in the table, giving rise to potential differences vs aggregate consensus numbers quoted on Bloomberg, which include a wider universe. We will be revising growth numbers
and risk assessment continuously, as signals evolve, and more information becomes available. *BBG consensus as of 19 September 2024.
3
2024 Global Macro & Investment Outlook
Global growth and inflation consensus forecasts for 2024
US continues to remain the bright spot on growth alongside moderating inflation expectations
2024 real GDP growth Bloomberg consensus forecast
4
2024 Global Macro & Investment Outlook
2024 CPI inflation Bloomberg consensus forecast
Global leading indicators
Fidelity’s leading indicator remains in the ‘bottom-right’ quadrant, signalling a continued loss in momentum in
the global industrial cycle
Fidelity Leading Indicator: cycle tracker
6.0%
Feb 23
Acceleration
4.0%
May 23
2.0%
Nov 22
Aug 23
Nov 23
0.0%
Feb 24
May 24
-2.0%
Aug 22
Aug 24
FLI below average
and declining
-4.0%
-8.0%
-6.0%
-4.0%
FLI above average
but declining
-2.0%
0.0%
2.0%
4.0%
Change (3m change, annualised)
Y-axis: acceleration (annualised 3m vs. 12m change); X-axis: growth (3m change, annualised)
Source: Fidelity International, FIL Global Macro Team calculations, Haver Analytics, September 2024.
5
0.8%
FLI above average
and increasing
FLI below average
but increasing
Acceleration
(Annualised 3m change vs. 12m change
8.0%
Fidelity Leading Indicator: components split
2024 Global Macro & Investment Outlook
6.0%
FLI below average
but increasing
FLI above average
and increasing
0.6%
0.4%
0.2%
Consumer and
Labour
0.0%
Industrial orders
-0.2%
Global trade
-0.4%
Business surveys
-0.6%
Commodities
FLI below average
and declining
-0.8%
-0.6%
-0.4%
FLI above average
but declining
-0.2%
0.0%
0.2%
0.4%
Change (3m change, annualised)
Y-axis: acceleration (annualised 3m vs. 12m change); X-axis: growth (3m change, annualised)
Source: Fidelity International, FIL Global Macro Team calculations, Haver Analytics, September 2024.
0.6%
Headline inflation is close to target…
…however, core inflation remains sticky and is likely to stay bumpy for G3 economies for the rest of the year.
Inflation trajectories remain benign for Japan and China
Global headline CPI rates
6
2024 Global Macro & Investment Outlook
Global core CPI rates
Four scenarios for developed markets in 2024
Interconnected and interdependent
5%+
Scenario 1:
Soft
landing
55%
Inflation
Stagflation
Scenario 2:
4%
30%
Scenario 3:
3
4
Inflation rate
Cyclical recession
1
2
2%
No landing
Recession
Soft landing
Reflation
10%
Scenario 4:
<0%
Stagflation
<-2%
5%
Note: Brackets reflect previous probabilities. Inflation rate measured by US Core Personal Consumption Expenditures Price Index.
Source: Fidelity International, September 2024.
7
2024 Global Macro & Investment Outlook
0%
<1%
Growth (GDP per annum)
3%
4%+
DM business cycle update
Soft landing dynamics remain in place
Regional activity trackers
Our US and euro area current activity trackers indicate further weakness in August. However, future activity
signals appear more encouraging indicating an improving trend
Current activity trackers
Future activity trackers
1.50
1.50
1.00
1.00
0.50
Z-Score
Z-Score
0.50
0.00
0.00
-0.50
-0.50
-1.00
-1.00
-1.50
Aug-20
-1.50
Feb-21
Aug-21
Feb-22
US Current Activity Tracker
Aug-22
Feb-23
Aug-23
Feb-24
EA Current Activity Tracker
Source: Fidelity International, FIL Global Macro Team calculations, Haver Analytics, September 2024.
9
2024 Global Macro & Investment Outlook
Aug-24
-2.00
Aug-20
Feb-21
Aug-21
Feb-22
US Future Activity Tracker
Aug-22
Feb-23
Aug-23
EA Future Activity Tracker
Feb-24
Aug-24
Labour market rebalancing fast…
…although it remains tight relative to previous cycles
Percentile
US Labour Market Tightness Indicator
100
1
90
0.9
80
0.8
70
0.7
60
0.6
50
0.5
40
44.43 0.4
30
0.3
20
0.2
10
0.1
0
1955
1958
1961
1964
1967
1970
NBER recession periods
1973
1976
1979
1982
1985
1988
Soft landing periods
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
0
2024
Fidelity US Labour Market Tightness Indicator
Note: The US Labour Market Tightness Indicator consists of 9 hard and soft indicators, and a percentile of 0 indicates loose labour market condition while a percentile of 100 indicates a tight labour market condition. See appendix for list of indicators.
Source: Fidelity International, FIL Global Macro Team calculations, Haver Analytics, Bloomberg, September 2024.
10
2024 Global Macro & Investment Outlook
Alternative measures of inflation for the US and EA
The alternative measures of inflation are progressing in the right direction but some backward-looking
components such as shelter remain elevated in the US. In the EA, services inflation remains a concern
US alternative measures of inflation
11
2024 Global Macro & Investment Outlook
EA alternate measures of HICP
Financial conditions continue to ease again for the US and act as a tailwind…
…although they remain tight for the Euro area and the UK vs 2022 levels
G3 Financial condition index (FCI)
12
2024 Global Macro & Investment Outlook
Financial conditions impulse on growth vs FCI
G3 central banks
Fed catches up with other central banks by starting its easing cycle with a 50bps cuts and indicating a series of
cuts back to neutral. Meanwhile the ECB and the BoE continue to adopt a gradual easing cycle
Fed
13
ECB
2024 Global Macro & Investment Outlook
BoE
US macro outlook
Growth momentum remains strong but with elevated risks
US economic growth continues to hold up at strong levels…
…driven by robust consumer spending, despite recent recession fears
US GDP growth and nowcasts (QoQ, SAAR)
15
2024 Global Macro & Investment Outlook
Core GDP (final sales to private domestic purchasers) - contribution
Strong consumer spending continues to drive economic growth…
…although part of this is fuelled by dipping into savings, as income growth has not kept pace with spending
Real personal income and spending
16
2024 Global Macro & Investment Outlook
US savings rate and net worth as % disposable personal income
Our US activity trackers have deteriorated…
…with more pronounced weakness visible in the manufacturing sector expected to continue ahead. Service
and consumer sectors are expected to pick up as per leading soft indicators
US: CAT and FAT
CAT: Sub-components
1.5
1.5
1.0
1.0
FAT: Sub-components
2.0
1.5
1.0
0.5
0.0
0.5
Z-Score
Z-Score
Z-Score
0.5
0.0
-0.5
-0.5
-1.0
-1.0
0.0
-0.5
-1.0
-1.5
-2.0
-1.5
US Current Activity Tracker
-1.5
US Future Activity Tracker
Source: Fidelity International, FIL Global Macro Team calculations, Haver Analytics, September 2024.
17
2024 Global Macro & Investment Outlook
-2.5
Industry
Services
Consumer
Industry
Services
Consumer
Divergence between manufacturing and services PMI at elevated levels again
…signalling diverging trends. However, services remains the main engine of growth
S&P manufacturing and services PMI
18
2024 Global Macro & Investment Outlook
ISM manufacturing PMI – demand/supply drivers
US labour market continues to see broad based slowdown…
…with a clear loss in momentum but no imminent signs of recession yet
Nonfarm payrolls (3mma)
Source: Fidelity International, Macrobond, BLS, September 2024.
19
2024 Global Macro & Investment Outlook
Hiring and quits rate remain low…
…with increased difficulty in finding jobs
Unemployment rate rounds down as temporary layoffs reverse in August…
…although Sahm rule remains triggered. Supply side dynamics explain part of the increase in unemployment
rates while employment levels remain healthy, particularly for prime age groups
Unemployment rate
UE persons by reason of unemployment
Employment to population ratio
Source: Fidelity International, Macrobond, BLS, September 2024.
20
2024 Global Macro & Investment Outlook
Rising unemployment rate is not commensurate with significant job shedding yet
Jobless claims, insured unemployment rate, and layoffs remain low within comfort bands
Jobless claims move lower again
21
2024 Global Macro & Investment Outlook
Insured unemployment rate in normal ranges
Layoffs remain low
US NFP recession bands – not quite at recession levels yet
Non-farm payrolls usually turn negative during the start of a recession on average. Recession upper bands
indicate total and private payrolls need to fall below 111K and 76K to test the start of a recession
US NFP during past 10 recession episodes
22
2024 Global Macro & Investment Outlook
US NFP (private) during past 10 recession episodes
Inflation is moving back to target across the board…
…increasing Feds confidence in kickstarting a sharp easing cycle
Core CPI % change annualised
US alternative measures of inflation
Fed September 2024 projections
6.0
5.1
5.0
4.4
4.1
4.0
3.4
3.1
2.9
3.0
2.8
2.6
2.3
2.0
2.0
2.2
2.0
1.0
0.0
June 24 SEP September 24 June 24 SEP September 24
SEP
SEP
Fed funds rate
2024
Source: Fidelity International, Macrobond, BLS, September 2024
23
2024 Global Macro & Investment Outlook
Source: Fidelity International, Macrobond, BEA, Fed Bank of Dallas, Fed Bank of
Atlanta, Fed Bank of Cleveland, September 2024
Core PCE
2025
2026
2027
Source: Fidelity International, Federal Reserve, September 2024
Euro area macro update
Recovery is stalling but consumption set to finally rise in 2025
Recovery is stalling with business surveys suggesting a loss of momentum in Q3
Germany remains particularly weak, more than offsetting better conditions in Spain
Surveys suggest renewed loss of momentum…
25
2024 Global Macro & Investment Outlook
… with Germany still the weakest link, Spain outperforming
Consumption growth has flat lined since 2022…
…as cost-of-living crisis stands in the way of a proper recovery
Retail sales sideways below pre-Covid trend…
26
2024 Global Macro & Investment Outlook
… and car sales remain well below pre-Covid as well
However, real disposable income growth is now rising strongly…
…as inflation cools down, which should help boost consumption in 2025, alongside normalising savings rate as
ECB cuts
Disposable incomes are rising now at a decent pace …
27
2024 Global Macro & Investment Outlook
… and savings are high and rising as interest rates remain high
The labour market remains very healthy with record-low unemployment …
… but employment growth is weakening, and surveys suggest further weakness ahead
Unemployment is at an all-time low …
28
2024 Global Macro & Investment Outlook
… but employment growth is slowing
Wages have caught up with the price level adjustment and is now easing …
… and a lot of previous increases have been absorbed by profit margins
Wage growth is slowing gradually …
29
2024 Global Macro & Investment Outlook
… and wage growth has been absorbed by profit margins
UK macro update
Cyclical recovery on track
Growth has accelerated significantly in 2024
The UK is likely growing above 1% in 2024, well above earlier BoE and OBR estimates
GDP has recovered nicely in 2024 and is trending 2.3% AR
31
2024 Global Macro & Investment Outlook
PMIs consistent with continued growth of 0.2-0.3% in Q3
LFS data remains unreliable, but trends still guide MPC towards easing
Response rates are improving but data remains too volatile month-to-month, but labour market is loosening
LFS unemployment rate remains volatile but trending up …
32
2024 Global Macro & Investment Outlook
… and PAYE employment growth now falling on a 3m/3m basis
Employment growth has slowed noticeably but surveys suggest a rebound in Q4
Redundancies aren’t rising, and the recent surge in claimant counts are methodology change related
Surveys suggest an employment rebound in Q4 …
33
2024 Global Macro & Investment Outlook
… and redundancies are not rising, though claimant counts are
Wage growth remains too high and alternative measures suggest a 5% run-rate
Pay settlement data, surveys, and online job posting data suggests wage stickiness at current levels
Wage growth has moderated but remains sticky at around 5%
34
2024 Global Macro & Investment Outlook
Other wage data suggests stickiness as well
Inflation remains too high as services inflation remains sticky …
… but energy inflation is also set to accelerate again over the winter and well into 2025
Tight labour market keeps services inflation sticky
35
2024 Global Macro & Investment Outlook
Energy inflation is turning positive again over next 12m
Japan macro update
Gradual hikes into a new equilibrium
Growth momentum has picked up
Private consumption has rebounded thanks to rising wages. Additionally, there has been a notable rise in
tourist spending, particularly benefiting the lodging and shopping sectors
GDP contributions
37
2024 Global Macro & Investment Outlook
Tourist spending
Sustainable wage growth raises long term inflation expectation
The sustainable wage growth trend is likely to boost the confidence of the BOJ, supporting domestic demand
Nominal and real wage growth
BOJ inflation outlook
4.5
4
BOJ
forecast
3.5
%YoY
3
2.5
2
1.5
1
0.5
Jan-22
Feb-22
Mar-22
Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Jul-24
FY-24
FY-25
FY-26
0
BOJ's core CPI July forecast
Source: Fidelity International, Macrobond, Bloomberg, September 2024.
38
2024 Global Macro & Investment Outlook
Core CPI
Note: Dots indicate BOJ’s April core CPI forecast
Source: Fidelity International, Haver Analytics, BOJ, September 2024.
Headline CPI
BOJ to continue with policy normalisation
BOJ raised policy rate in July as expected, we expect one more hike in 2024
Market-implied path: BOJ bank rate
BOJ’s JGB holdings
600
550
QT announced
JPY trillion
500
450
400
350
300
2016
2017
2018
2019
2020
2021
2022
BOJ JGB holdings
Note: implied path as of 19 September. Hikes/cuts assume 10bp increments
Source: Fidelity International, Macrobond, Bloomberg, September 2024.
39
2024 Global Macro & Investment Outlook
Note: Orange dashed line represents the BOJ’s JGB reduction plan
Source: Fidelity International, Bloomberg, September 2024.
2023
2024
2025
2026
Carry trade unwind
The narrowing interest rate differential has sparked a surge in equity volatility as carry trades unwind.
US-JP real yield differential
JPY speculative positioning vs VIX
170
3.5
3.0
160
2.5
150
2.0
140
1.5
130
1.0
0.5
120
0.0
110
-0.5
100
90
2014
-1.0
-1.5
2015
2016
2017
USD-JPY
2018
2019
2021
2022
2023
2024
US-JP 10Y real yield diff (%, RHS)
Source: Fidelity International, Bloomberg, September 2024.
40
2020
2024 Global Macro & Investment Outlook
Source:Source:
FidelityFidelity
International,
Macrobond,
Bloomberg,
September
International,
Bloomberg,
September
2024.2024.
Portfolio flows show divergent outlook on policy
Japanese investors continued to pile into overseas bonds. On the contrary, foreign investors are buying
Japanese medium/long term bonds
Japanese investment in foreign securities
41
2024 Global Macro & Investment Outlook
Foreigners' investment into Japanese securities
China macro update
Controlled stabilisation but with increased downside risks
Three scenarios for China in 2024
Scenario 1:
Controlled
stabilisation
55% (65%)
Scenario 2:
Serious
slowdown
35% (25%)
Scenario 3:
Reflation
10%
Growth
Inflation
Monetary policy
Fiscal policy
The pace of recovery gradually gains
momentum as consumption improves.
Property sector stabilises on stronger
stimulus. Industrial activities remain
resilient as developed markets slow
gradually. Real GDP growth stabilises
around the government’s target.
CPI and PPI rebound softly on the back
of a gradual recovery in domestic
demand. Inflation stabilises slightly
below target over the medium term.
The PBoC cuts rates marginally to
support growth. It also manages liquidity
by buying and selling government bonds
in the secondary market as MLF
operates fade.
Policymakers accelerate the fiscal
easing by bond issuance to fund
infrastructure projects. It will continue
with gradual de-risking plans to resolve
structural issues in local government,
property and banking sectors.
The economy faces stronger headwinds
from domestic structural issues and a
developed market slowdown. Potentially
rising geopolitical tensions (such as
steep tariffs increase on Chinese
exports) could be another major shock
to growth and may lead to severe
slowdown in the broader economy.
Both CPI and PPI gradually fall into
deflation well below government targets.
The PBoC delivers limited or no rate
cuts as it priorities currency stability
over domestic easing.
Policymakers are slow to introduce
sufficient fiscal support for growth due to
limited fiscal policy room and rigid fiscal
framework.
The recovery becomes more broadbased and gains momentum with a
more dovish policy setting. Property
sector takes the lead from a strong
monetary policy push. The initial
impulse is strong, but it creates more
debt problems in future. Growth may
rebound above target.
Both CPI and PPI recover and gain
momentum with the strong domestic
demand rebounding to match or beat
the government target.
The PBoC eases monetary policy more
aggressively with consecutive
benchmark rate and reserve
requirement ratio cuts. The system is
flushed with liquidity to accommodate
broad-based re-leveraging.
Policymakers explicitly bail out stressed
local governments and property sector
companies, leading to renewed
optimism in re-leveraging. They also
aggressively expand fiscal deficits to
support domestic demand.
Note: The numbers in the brackets represent previous probabilities.
Source: Fidelity International, September 2024.
43
2024 Global Macro & Investment Outlook
China Activity tracker deteriorates further in August indicating below target growth
China activity is looking weak driven by subdued property sector and choppy movements in the services
sector. Industrial sector continues to support growth
China activity indicator (CH-AI)
China activity indicator (CH-AI) by sector
3.0
4
3
2.0
2
1
Z-Score
Z-Score
1.0
0.0
-0.60
-1.0
0
-1
-2
-2.0
-3
-3.0
-4
China Activity Indicator (CH-AI)
Source: Fidelity International, FIL Global Macro Team calculations, Bloomberg, Haver Analytics, Wind, September 2024.
44
2024 Global Macro & Investment Outlook
Industry
Services
Property
Property sector did not react to the easing policy sustainably
The incremental easing policies has not stabilized the property sector yet
70-city new home prices (Jan 2021=100)
30-city property transactions volume
110
600
105
500
100
10 thousand SQM
95
90
85
80
75
400
300
200
100
70
0
65
2016
1
2017
2018
2019
2020
Tier 1
Tier 2
Source: Fidelity International, Bloomberg, September 2024.
45
2024 Global Macro & Investment Outlook
2021
Tier 3
2022
2023
2024
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53
Number of weeks
2020-2022 average
Source: Fidelity International, Wind, September 2024.
2023
2024
Wider trade surplus partly offset the headwinds from tepid domestic demand
Exports continue to outperform while imports disappoint
China trade balance (annualized)
46
2024 Global Macro & Investment Outlook
China trade volume index
Monetary policy is easy but demand remains weak
Demand for credit is weakening despite accommodative policy stance
Aggregate financing (credit impulse)
Inflation and policy rate
50
15
8
40
7
10
30
20
10
4
0
3
0
2
-10
-5
1
-20
2019
2020
2021
2022
Aggregate financing (12m rolling sum)
Source: Fidelity International, Bloomberg, September 2024.
47
2024 Global Macro & Investment Outlook
2023
New Loans
2024
-10
2007
0
2009
PPI
2011
CPI
2013
2015
2017
1Y Lending Rate (RHS)
Source: Fidelity International, Bloomberg, September 2024.
2019
2021
2023
1Y MLF Rate (RHS)
%
5
5
YoY %
%YoY
6
Geopolitics
US elections and ongoing geo-political tensions remain key risks to monitor
US elections: Harris seen consolidating lead over Trump in national polls…
….however, contests in swing states remain within the margin of error
Trump vs Harris vs Biden betting odds
49
2024 Global Macro & Investment Outlook
US political polls: Which party wins presidency in 2024?
Ongoing geo-political conflicts remain key source of shock we are monitoring
Supply side shocks to input prices and shipping costs is modest relative to covid times, but should tensions
persist and escalate through 2024, global supply constraints will resurface again
Global PMI
Baltic dry and Harpex index
75
33
70
35
65
38
60
40
55
43
50
45
45
48
40
50
35
53
6000
5000
4000
Index
30
Inverted
80
3000
2000
30
Aug-19
Aug-20
Aug-21
Aug-22
Aug-23
55
Aug-24
1000
0
Global PMI: Manufacturing input prices
Global PMI: Manufacturing suppliers' delivery times (RHS)
Source: Fidelity International, Haver Analytics, September 2024.
50
2024 Global Macro & Investment Outlook
Baltic exchange dry index
Harpex index
Source: Fidelity International, Bloomberg, Haver Analytics, September 2024.
Investment implications
Keeping some dry powder
Views at a glance
Equity regions
Government bonds
View
Change

-
Support comes from earnings and the potential for multiples expansion.
However, valuations are demanding, and fiscal support is waning.
US Treasuries


-
Election risk premia may have subsided, but economic activity looks
sluggish. Within Europe, we prefer south over core.
Euro core (Bund)


-
Growth is improving, consumer confidence recovering, and the BOE
easing cycle has begun. UK Valuations remain attractive.
UK Gilts

▼
The fundamental picture is less positive due to moderating global
growth and the strengthening yen. We still prefer mid caps.
Japan govt bonds

Inflation linked
bonds (US TIPS)
US

Europe ex. UK

UK

Japan

Emerging markets

Pacific ex. Japan





Rationale


-
We prefer DM over EM as global growth is not strong enough to
concretely support improving EM earnings. China’s restructuring is also
a drag.


-
Australia’s weak outlook keeps us underweight. We prefer Singapore
equities, where valuations are cheap and fundamentals are improving.
Credit
View
Change

-
We believe that the pace and magnitude of the approaching cutting
cycle will be unable to match market expectations.
-
Fundamentals are mixed with inflation looking sticky with a resilient
labour market versus tepid growth numbers.

▲
We prefer Gilts for duration. The BOE seems likely to lean on the
dovish side and market pricing of UK yields is currently too high.

-
The BOJ could hike more than the market has priced in, but policy
uncertainty remains elevated.
-
We stay neutral on TIPS due to the rapid rise in real rates and
softening inflation outlook.








Rationale
Currencies
Investment grade
(IG) bonds
Global high yield
Emerging market
debt (EMD, hard
currency)
View
Change

-
The credit market in general is still priced for a soft landing, and
spreads remain very tight in IG.
USD

Default risk and credit stress remain anchored. Despite tight spreads
in many areas, all-in-yields still look attractive, especially as cash rates
look set to fall. We prefer short-dated HY.
EUR

-
JPY

-
Things looking mixed for EMD. Fed rate cuts could benefit hard
currency EMD spreads. Certain local currency high yielder rates could
benefit from higher real yields as inflation is better controlled in EM.
GBP

EM FX









Rationale
View
Change

▲
US growth is still relatively robust. Although USD is expensive, Fed
rate cut expectations look too optimistic.
-
Fundamentals are weak despite political risks abating.
▼
The yen might be attractively valuated, however we believe carry
trades will be re-entered once volatility subsides.
-
Supportive fundamentals due to positive growth surprises and
inflation stickiness, but positioning is extended.
-
We are seeing selective opportunities in EM FX such as ZAR, INR,
TRY.









Rationale
Source: Fidelity International, as of August 2024. Change reflects directional difference in view versus previous month. Views reflect a typical time horizon of 12–18 months and provide a broad starting point for asset allocation decisions. However,
they do not reflect current positions for investment strategies, which will be implemented according to specific objectives and parameters.
52
2024 Global Macro & Investment Outlook
Appendix
US Labour market and growth dashboards
Both our growth and labour market dashboards are showing soft landing signals
Growth Signal
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Jul-24
Aug-24
Soft landing Soft landing Soft landing
Soft landing Soft landing Soft landing Soft landing Soft landing
Soft landing Soft landing Soft landing
CAT (Z-score)
Soft landing ↓
Soft landing ↓
Soft landing ↑
Soft landing ↓ Soft landing ↓ Soft landing ↓
↑
↑
↑
↑
↓
↓
↑
↑
↑
↓
↑
Soft landing
Soft landing Soft landing
Soft landing
Soft landing Soft landing Soft landing
FAT (Z-score)
Soft landing ↑ Recession Soft landing
Soft landing ↓
Recession Soft landing
Soft landing ↑
Soft landing ↓ Soft landing ↑ Soft landing ↓
↑
↓
↓
↑
↑
↓
↓
Soft landing
No landing
Soft landing
No landing
No landing
GDP Nowcast (%QoQ, SAAR)
Soft landing
No landing
No landing ↑ No landing ↓ No landing ↓ Soft landing
No landing No landing ↓
No landing ↑
No landing ↓ No landing ↑ No landing ↓
↑
↑
↑
↓
↓
Soft landing
Soft landing
Soft landing Soft landing Soft landing
Credit Impulse: Bank credit
Soft landing ↓
Recession Recession ↓ Recession ↓ Recession ↑ Recession ↑ Recession ↑ Soft landing
Soft landing ↑
Soft landing ↑ Soft landing ↑
↓
↑
↑
↑
↑
Soft landing
Soft landing Soft landing Soft landing
Credit Impulse: C&I loans
Recession Recession ↓ Recession ↓ Recession ↓ Recession ↓ Recession ↑ Recession ↑ Recession ↑ Soft landing
Soft landing ↑
Soft landing ↑ Soft landing ↑
↑
↑
↑
↑
Non-farm business productivity (%QoQ,
No landing
Soft landing
No landing
No landing No landing
No landing
No landing No landing ↓ No landing No landing Soft landing Soft landing Soft landing
Soft landing Soft landing
SAAR)
↑
↑
No landing No landing
No landing
No landing
No landing
Housing Market tracker (Z-score)
Soft landing ↑ No landing
No landing ↓ No landing ↑ No landing ↑ No landing ↑ No landing ↑
No landing ↑
No landing ↑
No landing ↑ No landing ↑
↑
↑
↓
↑
↓
Aggregate signal
Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing Soft landing
Note – Credit impulse is calculated as 6 month change of annual growth rate of credit
Soft landing
Please see the appendix for the details behind our rules for mapping data to soft landing, no landing or a recession scenario
Labour market indicators
Apr-23
May-23
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Jul-24
Aug-24
Soft landing
↓
Non-farm payrolls ('000), 3MA
No landing ↓ No landing ↑ No landing ↑ No landing ↓ No landing ↓ No landing ↑ No landing ↓ No landing ↓ No landing ↑ No landing ↑ No landing ↑ No landing ↑ No landing ↓ No landing ↓ Soft landing Soft landing ↓
Employment to population
Soft landing ↑Soft landing ↓Soft landing ↑Soft landing ↑Soft landing ↑Soft landing ↓Soft landing ↓Soft landing ↑Soft landing ↓Soft landing ↑Soft landing ↓Soft landing ↑Soft landing ↓Soft landing ↓Soft landing ↑ Recession Recession ↑
Job opening per unemployed
No landing ↑ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↑ No landing ↓ No landing ↑ No landing ↓ No landing ↓ No landing ↓ No landing ↑ Soft landing Soft landing ↓
Soft landing
↑
Unemployment rate*
No landing ↑ No landing ↓ No landing ↑ No landing ↑ No landing ↓
Soft landing Soft landing ↓Soft landing ↓Soft landing ↓
Soft landing
↑
Average hourly earnings YoY
No landing ↑ No landing ↓ No landing ↑ No landing ↑ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↑ No landing ↓ No landing ↓ No landing ↓ No landing ↑ No landing ↓ No landing ↓
No landing
↑
Aggregate signal
No landing
No landing
No landing
No landing
No landing
No landing
No landing
No landing
No landing
No landing ↑
No landing
No landing
No landing
No landing
No landing
Soft landing
No landing
No landing
No landing
No landing
No landing
Soft landing Soft landing Soft landing
Note: UR = unemployment rate, arrows are reversed. ↓ reflects rising UR and ↑ reflects falling UR. To calculate job openings per unemployed ratio for August 2024 we have used the Job openings number of July 2024
Please see the appendix for the details behind our rules for mapping data to soft landing, no landing or a recession scenario
Source: Fidelity International, Haver Analytics, September 2024.
54
2024 Global Macro & Investment Outlook
US inflation and financial conditions dashboards
Our inflation and financial conditions dashboard point towards a soft-landing signal with a moderation in
underlying trend
Inflation indicators
May-23
No landing ↑
Core CPI %6MA
CPI
Core services CPI ex shelter %6MA
measures
Atlanta Fed Core sticky CPI ex
shelter %1MA, 6mma
No landing ↓
Soft landing
No landing ↑
Core PCE %6MA
Jun-23
Jul-23
Aug-23
Sep-23
Oct-23
Nov-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
Jul-24
Aug-24
Soft landing Soft landing
No landing ↓ No landing ↓ No landing ↓ No landing ↓ Soft landing Soft landing ↓ Soft landing ↑ No landing No landing ↑ No landing ↑ No landing ↑ No landing ↓ Soft landing
↓
↓
Soft landing
Soft landing Soft landing ↓ Soft landing ↓ No landing Soft landing No landing No landing ↑ No landing ↑ No landing ↑ No landing ↑ No landing ↑ No landing ↓ No landing ↓ Soft landing
↓
Soft landing Soft landing
Soft landing ↓ Soft landing ↓ Soft landing ↓ Soft landing ↑ Soft landing ↓ Soft landing ↑ Soft landing ↑ No landing No landing No landing ↑ No landing ↑ No landing ↓ Soft landing
↓
↓
Soft landing
No landing ↓ No landing ↓ Soft landing Soft landing ↓ Soft landing ↓ Recession Recession ↓ Soft landing
No landing No landing ↑ No landing ↑ No landing ↑ Soft landing
↑
Core services PCE ex Housing
%6MA
FRB Dallas: Trimmed-Mean %6M
PCE
measures PCE ann.
No landing ↓
No landing ↓ No landing ↓ Soft landing
No landing ↓
No landing ↓ No landing ↓ No landing ↓ No landing ↓ Soft landing Soft landing ↓ Soft landing ↓
Soft landing
↑
FRB Cleveland Median PCE %1M,
6mma, ann.
No landing ↓
No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↓ No landing ↓ Soft landing
No landing No landing ↑ No landing ↓ No landing ↓ No landing ↑ No landing ↑ Soft landing
PCE CSXH Median, %6MA
No landing ↓
No landing ↓ No landing ↑ No landing ↓ No landing ↑ No landing ↓ No landing ↓ No landing ↑ No landing ↑ No landing ↑ No landing ↑ No landing ↓ No landing ↓ No landing ↑
No landing ↓
No landing ↓ No landing ↑ No landing ↑ No landing ↓ No landing ↑ No landing ↑ No landing ↓ Soft landing
No landing Soft landing No landing No landing ↑ No landing ↓ Soft landing
No landing ↑
No landing ↓
No landing
No landing
Soft landing
No landing
No landing
No landing
No landing
No landing
No landing
Soft landing Soft landing Soft landing
No landing
Soft landing
No landing
↓
No landing No landing No landing
Apr-23
May-23
Jun-23
Jul-23
Dec-23
Jan-24
Feb-24
Mar-24
Apr-24
May-24
Jun-24
WEI - (FCI-G, 1Y lookback)
Recession
Recession ↑
Soft landing
Soft landing ↑ Soft landing ↑ Soft landing ↓ Soft landing ↓ Soft landing ↑
No landing
Soft landing
No landing
No landing ↑
No landing ↓
No landing ↑
No landing ↓
WEI - (FCI-G, 3Y lookback)
Recession
Recession ↑
Soft landing
Soft landing ↑ Soft landing ↓ Soft landing ↓ Soft landing ↓ Soft landing ↑ Soft landing ↑ Soft landing ↓ Soft landing ↑ Soft landing ↑ Soft landing ↓
No landing
No landing ↓
Inflation UMICH Inflation expectation: 1 year
expectation
s
UMICH Inflation expectation: 5 year
Aggregate signal
Financial conditions Indicators
Real Proxy funds rate > R*
Soft landing ↓ Soft landing ↑ Soft landing ↓
SLOOS C&I loans**
Recession ↓
Recession
Aggregate signal
Recession
Recession
No landing
Aug-23
Soft landing Soft landing ↓ Soft landing ↑ No landing No landing ↑ No landing ↓ No landing ↑ No landing ↓ No landing ↓ Soft landing
Sep-23
No landing No landing ↓ No landing No landing ↑ No landing Soft landing
No landing ↑ Soft landing Soft landing Soft landing
Oct-23
Nov-23
No landing
No landing No landing No landing
No landing
No landing Soft landing
Recession
Recession ↓
Recession ↓
Recession ↓
Recession ↓
Recession ↑
Recession ↑
Recession ↑
Recession ↑
Recession ↑
Recession ↑
Recession ↑
Recession
Soft landing ↑
Soft landing
Soft landing
Soft landing ↑
Soft landing
Soft landing
Soft landing ↓
Soft landing
Soft landing
Soft landing ↑
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
Soft landing
No landing
Soft landing
Note: The real proxy funds rate is a 6M moving average of the SF Fed proxy rate deflated by the 6mma of core PCE. WEI is the weekly economic index published by the Dallas Fed which we convert into a monthly frequency
Please see the appendix for the details behind our rules for mapping data to soft landing, no landing or a recession scenario
Source: Fidelity International, Haver Analytics, September 2024.
55
Soft landing
↓
2024 Global Macro & Investment Outlook
ECB: Last mile of inflation fight remains tough, but Fed cuts allow for further easing
Services inflation remains too high but economic activity below trend, allowing a cut in September
Market-implied path: ECB bank rate
56
2024 Global Macro & Investment Outlook
EA Wage growth set to slowly ease further
Services inflation still too sticky
BOE: Labour market remains too tight for services inflation to ease properly
A more forward-looking BoE will continue to ease but sticky services inflation limits them to one cut in November
Market-implied path: BOE bank rate
57
2024 Global Macro & Investment Outlook
Wage pressures to keep services inflation sticky
France: New PM Barnier faces even worse fiscal situation than expected
In addition to a likely 0.4-0.5pp fiscal effort from the EDP, there’s a EUR 60bn fiscal hole vs SGP expectations
French deficits likely worse than expected …
… and domestic demand weakness risks lower tax revenues
GDP
Consumption
Public Consumption
GFCF
Export
Import
-2.5
-2
-1.5
-1
-0.5
0
2024 SGP Forecast
Source: Fidelity International, Macrobond, France Stability & Growth Program, September 2024
58
2024 Global Macro & Investment Outlook
0.5
1
1.5
Q2 2024, %Y
Source: Fidelity International, Macrobond, France Stability & Growth Program, Eurostat, September 2024
2
2.5
Rules behind our macro dashboards
Growth dashboard
Labour market dashboard
Rules
No
landing
Soft
landing
Recession
CAT
>0
-0.73 to 0
FAT
>0
GDP Nowcast
>2%
Credit Impulse:
Bank credit
Credit Impulse:
C&I loans
Non-farm business
productivity
Housing Market
tracker
>2%
>2%
Notes
Rules
No
landing
Soft
landing
<-0.73
-0.75 was the low of CAT during the 2001
recession
NFP (3MA)
>180K
75K-180K
<75K
-0.9 to 0
<-0.9
-0.9 or more is consistent with a >50% probability
of a recession as per our probit model
~183K is 2010-2019 average, 75K is average NFP 6
months prior to start of last three recession (90,01,08-09)
V/U ratio
>1.2
0.9-1.2
<0.9
0 to 2%
<0%
0.9 job opening/UE ratio is consistent with 4.5-4.6% UR,
1.2 in 2019 average
E/P ratio
>60.6%
60.1-60.6%
<60.1%
60.1% is consistent with a UR of 4.5%, 60.6 is 2018-19
average levels
AHE YoY
>3.5%
2-3.5%
<2%
Fed remark that 3-3.5% wage growth is consistent with
2% inflation.
UR
<3.9%
3.9-4.4%
>4.4%
Our macro grid estimates; Sahm’s rule
-4.5 to
+2.5%
-6.5% to
+2.5%
<-4.5%
<-6.5%
>3%
0 to 3%
<0
>0.3
-0.39 to 0.3
<-0.39
Assuming trend growth at 2% and recession is
negative growth
Since 1960s a credit impulse of -4.5% or lesser
has always resulted in a recession
Since 1960s a credit impulse of -6.5% or lesser
has always resulted in a recession
One standard deviation above 2010-19 average
productivity growth of 1.2%
CR cut off (-0.39) is average score of past
recessions. NL cut off (+0.3) is average score
during 2012-19
Financial conditions dashboard
Inflation dashboard
Rules
No
landing
Soft
landing
Recession
CPI measures
>=3.5%
3.5%>x>=2
<2%
PCE measures and inflation expectations
>=3%
Source: Fidelity International, September 2024.
59
Recession Notes
2024 Global Macro & Investment Outlook
3%>x>=2%
<2%
No
landing
Soft
landing
>2%
0.5% to 2%
<0.5%
Real Proxy FFR > R*
<0
0 to 2
>2
SLOOS: C&I loans
<0
0-50%
>50%
Rules
Recession Notes
FCI-G (1Y lookback)
FCI-G (3Y lookback)
Assuming trend growth at 2% and recession is
below 0.5% growth
Historically a restrictiveness of more than 2% has
resulted in a recession (1990 and 2001)
Positive (negative) values indicate tighter (looser)
standards and historically standards >50% has
resulted in a recession
Indicators underlying our PCAs and Labour Market Tightness Indicator
Updated on a monthly basis
USA PCA Framework – Indicators used
Eurozone PCA Framework – Indicators used
Fidelity Labour Market Tightness Indicator
PCA Current activity
PCA Current activity
Dates in brackets show when indicator starts being used
PMI Manufacturing - Production
PMI Manufacturing – Employment
NAHB Single Family Home Sales
Philly Fed Manufacturing Business Activity
Richmond Fed Manufacturing – Capacity Utilisation
PMI Non-Manufacturing - Business Activity
PMI Non-Manufacturing – Employment
Richmond Fed Service Sector - Revenue
Richmond Fed Service Sector – No of Employees
UMICH Consumer Sentiment Current Conditions
Conference Board Consumer Confidence Present Situation
Mortgage Purchase Applications
German Ifo Business Climate: Manufacturing
EC Industrial Confidence
EC Construction Confidence
PMI Manufacturing - Quantity of Purchase
PMI Manufacturing - Production
EC Service Confidence
PMI services
German Ifo - Business Climate: Services
German Ifo - Passenger car demand
EC Consumer Confidence
ZEW Economic Sentiment
EC Retail
EC Employment Expectation
PCA Future activity
PMI Manufacturing - New Orders
NAHB Single Family Home Sales - In 6 months
Philly Fed Manufacturing - Future Business Activity
Empire State Manufacturing – New orders
Richmond Fed Manufacturing – Capacity Utilisation in 6 months
PMI Non-Manufacturing - New Orders
PMI Non-Manufacturing - New Export Orders
Richmond Fed Service Sector Demand – 6 months ahead
UMICH Consumer Sentiment Expectations
Conf. Board Consumer Confidence Expectations
Conf. Board Expectations of Buying New Home in 6M
Source: Fidelity International, September 2024.
60
2024 Global Macro & Investment Outlook
PCA Future activity
German Ifo 6 Months ahead
EC Industrial Production expectations
PMI manufacturing New orders*
PMI manufacturing New Export orders*
PMI Construction New orders*
EC Services expected demand over next 3 months
EC Retail trade expected business situation
PMI services New business*
EC Consumption fin situation next 12 months
EC Consumption eco situation next 12 months
Sentix Future
NAIRU minus UR (31/3/1949)
Jobs minus workers (where JOLTS have been extrapolated prior to December
2000 using a composite Help Wanted Index) (31/1/1951)
Employment NFIB firms with positions not able to fill right now (31/10/1973)
NFIB single most important problem:
percent reporting quality of labour (31/10/1973)
NFIB Businesses with few or no qualified applicants for job openings
(30/04/1993)
JOLTS quits rate / hires rate (31/12/2000)
Full employment normal guesstimate minus part time work for economic
reasons % employment (31/7/1955)
Conference board jobs plentiful minus jobs hard to get (31/1/1967)
Atlanta FED wage growth tracker: job switcher minus job stayer (31/3/1997)
Fidelity’s proprietary China Activity Indicator (CH-AI)
China Activity Indicator subcomponents
Sector
Indicator List
Weights
Major Ports Volumes
9.0%
Caixin manufacturing PMI: Output
7.3%
Manufacturing PMI: Production
7.3%
Manufacturing PMI: Employment
6.5%
Industrial Production
10.3%
Total Industry
40.4%
Caixin services PMI: Employees
6.5%
Caixin services PMI: Business Activity
7.5%
Auto sales
10.2%
Domestic flight
8.5%
Total Services
32.6%
Residential property sales
9.7%
Construction Starts
8.8%
Cement Production
8.5%
Total Property
27.0%
Industry
Services
Property
Source: Fidelity International, FIL Global Macro Team calculations, September 2024.
61
2024 Global Macro & Investment Outlook
Global Macro & SAA team
Powering asset allocation across Fidelity’s investment teams
Our team
Our role
▪ Part of Fidelity Solutions & Multi Asset, working across Fidelity’s investment
teams to feed into asset allocation decision making
Salman Ahmed
Global Head of Macro & SAA
Max Stainton
Stefan Rusev
Global Macro Strategist
Senior SAA Strategist
Peiqian Liu
Edoardo Cilla
Asia Economist
CMA Strategist
▪ Leading research into macroeconomic and market dynamics, supporting asset
allocation decisions and establishing core investment views
Evolving Fidelity’s capabilities
▪ Building out Fidelity’s capabilities in macroeconomic research
Marcus Gedai
Weiye Kou
Eurozone Economist
Associate CMA and SAA Strategist
Ashray Ohri
Senior Lead Macro Research
Mohd Tariq Azim
Lead Macro Research
Source: Fidelity International, September 2024.
62
2024 Global Macro & Investment Outlook
▪ Creating and maintaining Fidelity’s capital market assumptions (CMAs)
▪ Working in partnership with clients to create robust investment solutions and
provide services around asset allocation
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63
2024 Global Macro & Investment Outlook