Global inflation eases while the global economy stabilizes
Published on 2 July 2023
2023 began with a strong rise in the main global stock markets, despite the ongoing economic weakness that still persists.
This occurred amid the stabilization of global inflation and the decision by central banks to keep their interest rates high.
The moderation in the zero COVID measures announced by the Chinese government allows forecasting a better performance of the country’s activity in the coming quarters. The same applies to Europe, where given its proximity to the Asian giant and the anticipation of a less challenging winter in terms of energy supplies, a recession could be avoided.
In this context that shows signs of stabilization, we have decided to neutralize our position between fixed income and equities, maintaining a higher exposure to emerging markets over developed ones, especially in Asia, due to the positive outlook of the reopening process in China.
On the other hand, within the developed markets, we increased our exposure to Europe to a neutral position. This region has reduced the probability of a recession due to a decline in inflation expectations and improvements in corporate reporting and valuations. In contrast, we fund this shift with lower exposure in the United States, due to greater chances of recession.
Regarding Latin America, internal political frictions in Brazil lead us to maintain a neutral exposure in its market.
In fixed income, we maintain a preference for shorter-duration bonds with a neutral stance between credit and government bonds, with an overweight in investment grade debt, in the first category.
At the corporate level, the new contraction in emerging debt spreads stands out, consolidating a positive moment for this category.
Investment-grade credit remains stable with a positive outlook in a scenario of economic weakness, while high-yield awaits the potential growth effects mentioned.
Analyzing the local situation, it is possible to observe that sentiment towards the Uruguayan economy worsened for the second consecutive month, and a 2.5% variation in GDP is expected for 2023 and the following year.
The inflation expectations keep evolving favorably and in line with the efforts of monetary authorities, with a successive contraction in the indicator projected at 7.12% for the current year, according to the latest survey published by the Central Bank.
In terms of inflation, the latest available data confirmed the downward trend in the evolution of the Consumer Price Index, with the indicator closing December with a variation of 8.29%. Although it is still far from the target range, it is moving away from the highs of the year, which were around double digits.
In January, the performance of the main commodities was framed by a much more positive scenario. Indeed, the price of copper and gold maintained a better dynamic, advancing by 10.8% and 5.7% in dollars, respectively.
Regarding the labor market and in line with the latest observed data, expectations for 2023 place the unemployment rate at 7.9%, indicating a four-tenths increase in the December survey compared to the one conducted the previous quarter.
Lastly, regarding the exchange rate, during the last month, the value of the dollar resumed its downward trend, which had been interrupted in the second half of December. As a result, the U.S. currency closed January at $38.68, indicating an appreciation around 3.45% since the beginning of the year.
Considering the attractive levels that persist in local currency yields, we continue to maintain a preference for instruments in nominal pesos.
Taking into account this scenario, it is important to have the guidance of experts, that is why at Inversiones SURA, we offer the support of a highly qualified team, prepared to consider the best financial options for each profile, ensuring that the results of each investment are appropriate.