The peak of inflation pressures in the US and Europe is behind us in 2022 and a sharp and sustained decline in inflation during 2023 gives us a glimpse of a return to 2% for the first half of 2024.
Under this premise, the cap on interest rate increases is reached in the first quarter of 2023 and central banks do not need to be as aggressive with their “QT” program of off-balance sheet debt reduction.
If there is a threat of a severe recession by the end of 2023, central banks may announce the implementation of their expansionary policies again as they are succeeding in their fight against inflation.
There is no increase in global tensions at the geopolitical level: the war in Ukraine is entering a less active phase and there is talk of a ceasefire over time
Relations between the US and China remain tense but do not lead to new commercial or military conflicts.
The monetary tightening of 2022 results in a global economic recession in 2023, but entry into a deep and generalized recession is avoided. In this case, an equity correction of 25–35% is considered sufficient to correct the 2021 excess and investors repurchase the stock markets, concluding the corrective phase and ignoring that profit margins remains at an all-time high.
The end of the crisis revives appetite for riskier assets and investors pay higher multiples once again given the prospect of greater global stability
The real estate market stops growing at that rate in recent years, as it is negatively affected by the effects of the much higher cost of financing compared to previous years, but without excessive supply, prices stabilize and They do not have the same improvements recorded during previous bubble punctures.
Fixed income is once again attractive to the extent that the problem of inflation is controlled and interest rates are unlikely to rise any further than those already discounted by the market. The longer side of the curve begins to price a return to monetary normality of the past decade, meaning terminal rates are well below levels during the first quarter of 2023.