Ariel Bezalel and Harry Richards, investment managers of the Jupiter Strategic Bond fund, outline their macro thesis for investing in current markets and give an update on portfolio positioning.

 
“Financial markets are tightening up and they are going to do some of the work for us”, said Federal Reserve governor Christopher Waller, in a sign that the tide is beginning to turn in the Fed’s rhetoric about the future path of interest rate policy.

While the minutes from a recent FOMC meeting still speak of “proceeding” with current policy, the committee twice stresses that they must do so “carefully”. We would argue they should have been more careful before now.

Central banks, guided as they are by their main KPIs of managing inflation and unemployment, are having their policy action dictated by two of the most lagging indicators it is possible to find. It is the equivalent of driving a car while looking in the rear-view mirror. But if we look at the latest leading indicators to get a view of the road ahead, we can see a range of factors pointing towards recession.
 

Our macro thesis

 

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    Hard landing

     
    for the US economy driven by monetary contraction and tighter lending standards.

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    Recessionary forces

     
    fuelled by depletion in household savings and slack in the job market.

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    End of the tightening cycle

     
    as the rolling over of growth and wages create room for central banks to act.