The demand side of the US economy has been very robust. Fiscal spending by the Biden administration is massive and is supportive for growth at a time of low unemployment. This explains why the economy has held firm against higher interest rates.


Consumers have jobs and wage increases, and when inflation moderates, they will have real wage gains, which may provide strength into next year.


We are also seeing a supply side response to all this demand. The labour market is increasing, participation rates are going up and productivity is coming back. That’s what you need to deal with the surging demand — which includes fiscal programmes like President Biden’s Inflation Reduction Act, higher defence spending and capital expenditure related to geopolitical changes.

Higher for longer

The US Federal Reserve (Fed) has said that inflation will come down, though it might take longer, and that unemployment won’t rise that much. They see productivity gains helping to tame higher prices. Still, we think they will need to keep rates higher for longer given the strong growth — and the market needs to accept this.


I fail to see how you can get a recession. Given the stronger balance sheets since the Global Financial Crisis, we see it as harder for something to break and change the macro direction. However, the bond market breaking is a risk given the lack of demand for duration, quantitative tightening, massive fiscal spending, a strong US dollar and higher energy prices. Defaults will happen, zombie companies that overindulged on cheap credit will be taken out by higher rates, and some consumers on variable rate mortgages may suffer, but that will not change the global macro picture. The dollar will stay strong, and US risk assets look good.


In Europe and the UK the situation is more difficult. Demand is being hit from high interest rates and weakness in China, inflation is still far too high, and the employment picture is less robust. It’s something like stagflation. Europe and the UK will be impacted by higher oil prices and a strong dollar. If the Bank of England (BOE) and European Central Bank (ECB) stop hiking, their currencies will fall and make buying energy in dollars even more expensive.

Geopolitical change

China’s economy hasn’t managed much of a recovery since the Covid lockdowns and there are structural issues at play. China isn’t doing stimulus anymore; it is worried about debt levels and wants better quality growth. China investment supported the world for the previous 20 years but now the geopolitics are changing, and the impact is starting to be seen.


It’s time for everyone to do more for themselves. No more Russian energy for Europe or cheap goods from China. Nations are increasingly building capacities within their borders following the supply chain debacle caused due to reliance on China during the pandemic.


This should result in more capex and more fiscal spending in the west. Europe hasn’t done this very well so far. Eventually, we can get to a place where growth should be better, demand will improve and as long as countries can cope with that higher demand – with more workers and better productivity – all will be well. Inflation will never completely go away, however.

Race to the top

In a world where global goods are more expensive, it’s not a race to the bottom with interest rates and currencies — it’s a race to the top. This a new phenomenon. The central banks have a difficult choice now: they can protect their economies and accept higher inflation, or they can try to eradicate inflation and knock their economies down. The Fed is in a better position than the ECB or BOE.


Many investors today haven’t experienced these kinds of markets; they only know low inflation. Investing strategy has to be different now. Managing fixed income assets in an unpredictable macro environment calls for a lot of flexibility. The 60-40 portfolio model (60% equities, 40% fixed income) with long-only equities and bonds, used to be effective. Now it’s about relative value, bottom-up selection for stocks, credit and sovereigns and finding relative value. We see it as a new world and an excellent opportunity for absolute return strategies.

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

Important information

This communication is intended for investment professionals* and is not for the use or benefit of other persons, including retail investors.

This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.

The views expressed are those of the Fund Managers at the time of writing and are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Holding examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.

Issued in the UK by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. Issued in Hong Kong by Jupiter Asset Management (Hong Kong) Limited (JAM HK) and has not been reviewed by the Securities and Futures Commission.

No part of this commentary may be reproduced in any manner without the prior permission of JAM, JAMI or JAM HK.

*In Hong Kong, investment professionals refer to Professional Investors as defined under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong).and in Singapore, Institutional Investors as defined under Section 304 of the Securities and Futures Act, Chapter 289 of Singapore.
29395