City of London's Developed Markets Quarterly Outlook

The City of London's Developed Markets Quarterly Outlook report states that since their last report, all equity markets have produced negative returns. Emerging Markets have been the most challenging, as investors have reassessed their strategic allocation to China equities due to sluggish growth, a potentially more ideological government, and deteriorating US-China relations. Commodity-sensitive markets such as Australia, Canada, and the UK have fallen in line with the drop in industrial commodity prices. Japanese equity underperformance has closely tracked the sharply falling Japanese Yen. Inflation rates remain well above target across Developed Market economies, leading to the continuation of tightening policy by central banks. However, forward guidance has started to signal a slowing pace of rate hikes as central bankers want to observe the lagged effects from earlier rate changes. The outlook for growth in Developed Markets continues to be revised lower by consensus forecasts, with an increasing risk of recession in 2023. The MSCI All Country World Index is -20% YTD, and the US 10y-2y curve has inverted. Global earning revisions remain negative and the consensus estimate for EPS growth for 2023 is still a positive 5.1% yoy growth for the ACWI index, which means there is still considerable downside for earnings expectations in a recession scenario.