MUFG Outlines ‘New Macro Supercycle’ in 2023 Capital Markets Outlook
Mitsubishi UFJ Financial Group‘s capital markets strategy team released its 2023 outlook titled “The New Macro Supercycle,” providing a forward-looking perspective on the global economy, monetary policy and markets in the next 12 months and highlighting prevalent themes driving the worldwide economic environment in the decade ahead.
“The ‘Great Moderation’ of low inflation and volatility during the past 40 years is over,” Tom Joyce, head of capital markets strategy at MUFG, said. “Following the ‘polycrisis’ of 2022 stemming from concurrent geopolitical, energy and economic shocks, we have entered a more clearly defined period for economies and markets.”
Joyce said that although the last year was challenging, the recession fears of 2023 are likely less concerning and more greatly reflected in asset prices than the unexpected inflation and U.S. Federal Reserve tightening of 2022. In addition, he said we began 2023 with positive surprises across the world’s three largest economies, with rapidly declining U.S. inflation, the reopening in China and lower energy prices from warm winter weather in Europe.
Key Takeaways
The new “macro supercycle”: Joyce and his team highlighted dozens of new and pervasive themes driving the global economy and markets in the decade ahead, including a transition to quantitative tightening, persistently higher inflation, greater instability, shorter economic cycles, more rigorous investor scrutiny, long-term supply constraints for commodities, fragmented globalization, structural shortfalls in labor markets and an eastward shift in the global economy’s center of gravity.
The global economy: MUFG expects the most highly telegraphed series of mild, rolling recessions in decades, and is looking to 2024 as the more likely timing for a broad-based, sustainable global recovery.
Global monetary policy and U.S. public policy: In MUFG’s view, the historic monetary tightening of 2022 will be felt more in 2023, since monetary policy operates with a 12 to 18-month lag. In the United States, with a split Congress and narrow majorities in both houses, MUFG expects very limited fiscal support and more complexity in regular-way legislation in 2023.
The credit markets: MUFG foresees a “tale of two cities,” observing that, on one hand, investors entered the new year with a clean slate to put money to work in strong corporate balance sheets that offer more attractive yields than at any time since the global financial crisis of 2008 to 2009. However, MUFG also noted that, as the year progresses, decelerating earnings and margin compression will put pressure on a credit cycle that is poised to turn. Against this backdrop, MUFG believes that pre-funding strategies are especially important in 2023.
The global financial markets: The team behind the report recapped the research of MUFG’s U.S. macro strategy team with views for the year ahead, including bullish U.S. Treasury yields, bearish credit spreads, a moderating U.S. dollar and divergent paths for commodities as a result of mixed pressures — both upward and downward — on different commodity groups by region, such as natural gas in the United States and Europe.