Japan Expected to Grow Above Trend This Year

Last Edited by: LPL Research

Last Updated: February 23, 2024

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Jeffrey Roach:

Hi, I am Jeffrey Roach, Chief Economist for LPL Financial, with a quick update on what's happening in the global markets and the call to action for investors. First, markets are increasingly nervous that sticky inflation will derail expectations of the Fed cutting rates early this year, however, we haven't changed the narrative that inflation will decelerate throughout this year. As we often say, that path to lower inflation is not likely a straight line, but it should slope downward. Now, domestic inflation does seem to be currently stickier than international prices. The key investment takeaway from the global inflation story is that the European Central Bank may pivot sooner than the Fed. Historically, the ECB plays follow the leader and waits for the Fed to move first, whether the Fed is raising rates, cutting rates, or pausing. During the last several business cycles, the Fed was the first to move as illustrated in the chart, as I've shown this second chart in earlier podcasts, here's the call to action for this one.

Jeffrey Roach:

If inflation is convincingly decelerating faster in Europe than in the U.S., capital markets will likely experience a novelty. That is the ECB leading the way in altering monetary policy. This could have ramifications on the dollar, global yields, and equity markets. The third chart for this week is from a now-casting firm in London that gives us a first look into the global macro environment. What it tells me is that Japan is in a position to experience above trend growth while China and the U.S. are both set to grow below long term averages. Now, even though Japan was in recession last year, improving labor conditions, a currency that supports exports and firms with lots of cash all give credence to the strong equity performance by the NI-K year to date. So that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

Dr. Jeffrey Roach, Chief Economist for LPL Financial gives a quick update on what’s happening in global markets and issues a call to action for investors.

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