No recession, no disinflation?

Chief Investment Officer's team
06 March 2023
No recession, no disinflation


  • Activity data and surveys confirm a strong growth, potentially above-trend in the first quarter of 2023
  • February Euro Area core inflation surprised to the upside, and other regions could follow
  • Markets have revised their monetary policy forecast higher, without too much damage yet

Last week was broadly positive for cyclical assets, with a rebound in stocks across developed and emerging markets in particular, while most segments of the fixed income asset class were flat or mildly positive.

This obviously feels better than the broad-based sell-off of the previous week, but it is also good news with regards to the message delivered by the avalanche of activity data and surveys released last week. Without doubt growth is better than expected, both in terms of magnitude and breadth. The crucial US ISM Services index was almost unchanged versus January at 55.1 versus 55.2, and clearly above the median forecast of 54.5. This signals robust growth, in the most relevant sector for employment in the US. This wasn’t isolated. From Europe to Japan, including our region, India and China, manufacturing indices were resilient and services were in clear expansion territory, most of the times above expectations. This is good news for growth, but it obviously means that demand and jobs, the drivers of core inflation, continue to spur it. So far only one inflation report was out for February, and it wasn’t good: Euro area core inflation rose 0.7% month on month.

Markets took note by repricing implied expectations for global policy rates materially higher, though with no impact on risk-aversion. Either markets are not worried and think that activity and inflation eventually will cool down, or they just welcome the stronger growth and consider they can stomach tighter financial conditions?

Time will tell. Meanwhile, our positioning is unchanged. Our allocation to risk assets favors emerging markets where, under China’s leadership, policies are more pro-growth than anti-inflation. Stay safe.

Cross-asset Update

In the weekend during the annual parliamentary assembly held in March the Chinese government highlighted the achievements of the past year and submitted the budget and the target growth for 2023, set at 5%. This is a prudent objective likely reachable after the disappointments experienced in 2022, when the policy goal was missed by a wide margin. Not only must credibility be regained, but excessive stimulus is also to be avoided in Beijing’s view, so as not to set off boom and bust periods, while moderate and achievable growth remains the main focus. The Chinese recovery is expected to be consumer driven, and it could not be otherwise, with the outlook for exports dominated by the uncertainty of the global business cycle, domestic infrastructure investments saturated, while consumers can tap large savings accumulated during the prolonged lockdowns. At the assembly the government said that the priority would be the boosting of domestic demand, a reference to consumer spending and business investment.

Investors could be concerned that poorer stimulus would translate into a poorer showing for Chinese markets. We view such apprehensions as misplaced. The latest business surveys portrayed a booming economy, with strength across both the private and public sectors, demand and supply. The manufacturing and the services sectors roared back into expansion territory, driven by very solid output and new orders. It is usually the case that liquidity injections lead soft data, that in turn leads hard data. Hence, the tailwinds should persist, with the economy that has just reopened and consumers unlikely to spend as big a share of their savings in the no longer so vibrant real estate sector, driving more expenditure in other items.

Since the Chinese credit impulse leads equities by about 12 months, we should expect the continuation of the current bullish leg into the first half of this year, before it runs out of steam, with the peak in equities ideally aligning with that in the impulse, projected for next June. This rally might not match the vigor, nor the time extension of the previous bull markets, supported by outsize stimulus measures, yet, it seems it is way too soon to call and end to it. Also, Beijing’s cautious stance sets an important precedent in the attempt to strive for achievable growth, at the expense of leveraging shorter term gains at all costs. Going all-out on stimulus could risk an unnecessary devaluation of the yuan as investors would question the sustainability of a liquidity-driven economy amidst the dusting up of a known playbook.

It goes without saying that emerging markets will benefit from the spill-over effects of the Chinese recovery. We remain convinced about our overweight EM-versus-DM-equities call, whereby it would be preferable to be invested in cheaper markets leveraged to expansive policies driving a recovery, than in more expensive ones potentially capped by higher rates.

Fixed Income Update

The macro data released both in Europe and the US remained upbeat. The Euro flash PMIs meant the ECB would remain aggressive in the foreseeable future. The US ISM Services Index beat market expectations with a print of 55.1, cementing higher peak rate expectations. Markets currently price in a 5.44% peak rate and rates to stay above 5.3% for most of the year, with rate cut expectations towards the end of the year fast disappearing. This week we will see the crucial US Jobs data on Friday, the 10th of March.

The US 10-year yield has decreased slightly after touching 4% last week to end the week at 3.93%. The 2s10s part of the curve remains inverted at 91 bps. The yields could touch fresh highs if the Fed mulls a jumbo rate hike in March, which is still not priced in. The Fed officials, including Mary Daly and Thomas Barkin, stuck with an aggressive stance.

The OAS spreads remained range-bound last week as solid data supports credit. High Yield was the chief beneficiary of the spreads rally, and US HY returned +0.4%. It also leads the YTD returns chart, helped by its shorter duration and tighter spreads. The upward yield movement means the safest segments of Fixed Income have languished at the bottom of the table. Treasuries are the only Fixed Income segment that has posted a negative return YTD. Anecdotal evidence, such as Blackstone defaulting on one of its REITs, showcases the dangers of higher interest rates. A mismatch of cash flows when the funding markets are challenging could play havoc on any company's balance sheet. Hence, despite the recent underperformance, we stick to our call to invest in quality securities while avoiding overexposure to high yields.

Hopes of a strong rally in Emerging Market debt received a fact check this weekend as China set a modest GDP growth target of 5% for the year. Moreover, the fiscal deficit is set to widen as the govt plans to sell 20% more govt bonds. This would put upward pressure on the yields of Chinese Govt bonds. However, there was good news for the battered Chinese real estate sector; the government announced it would target "unregulated" expansion and seek to shore up the balance sheets of high-quality developers.

Emerging Market Corporate spreads look very tight, close to one standard deviation below the historical average and at the tighter end relative to US credit. We like BBB credit from Asia, including the GREs from India, Indonesia, and Korea. Highly rated GCC quasi-sovereign and project bonds offer a decent spread pick-up to DM comparables and better stability. Some of these bonds offer high yields for longer duration and are part of our top picks for the month.

Equity Update

Though US yields rose with the 2 and 10 reaching close to 5% and 4% respectively, as did yields for German Bunds and UK gilts, equities had a positive week including the tech sector. Last week saw global equities +1.7%, a broad rally, largely reversing the previous week of declines. We reiterate that volatility will persist and the rise in yields is worrying, ultimately slowing growth, though current data has been upbeat and Central Banks are not yet in a “pause” mode, with inflation far from target.

Year to date the S&P 500 is +5.7% with the Nasdaq +11.9%. The US economy and earnings have been strong in 2023, termed a ‘no landing’ scenario, thanks to robust labor and consumer spending data and the strong performance of cyclical equities. However, higher rates could increasingly weigh on performance. It’s been surprising how resilient US equities have been in the face of choppy earnings, inflationary data, and the continued shift higher in yields. The S&P 500 is close to our year-end fair value of 4000. Summing up recent economic data: headwinds include January core CPI inflation slightly stronger than expected; the service industry continues to benefit from pent-up COVID demand and labor market resilience in spite of the Fed’s effort to curtail demand. Mixed signals from retail data indicating demand remains robust, as does the passing on of higher costs to consumers with revenues growing even with declining earnings, while the rate impact of “higher for longer” is yet to materially impact corporates or individuals. European equities +1% last week, lower than the US which was up almost 2%, as inflation data from Europe indicated little respite on rate rises.

UAE equities were largely unchanged with focus on the ADNOC Gas IPO which raised USD 2.5 bn. Another eight companies including family businesses and tech entities are expected to list in Abu Dhabi this year as per the DG of Abu Dhabi’s Dept. of economic development. G42, the Abu Dhabi-based AI company, is considering at least six more IPOs, including G42 Healthcare, Presight.AI and AIQ, its joint venture with UAE national energy firm Adnoc, as per Bloomberg. G42 listed its Bayanat AI Plc unit last October. Five IPOs in Abu Dhabi raised $5.37bn last year with state-related entities dominating. Abu Dhabi Ports raised $1.09bn and Burjeel Holdings $299.9mn. The government’s AED5bn IPO fund is taking on IPO costs for some firms. We remain overweight UAE equities as the region continues to demonstrate economic resilience in a world with slowing growth.

China equities rallied 5% last week with PMI’s supporting confidence in the reopening. We think short term should see more upside as valuations are low historically and compared to the rest of the world. China will target GDP of around 5% for 2023, Premier Li Keqiang said at the National People’s Congress and also spoke of boosting domestic demand, i.e. consumer spending and business investment, would be the government’s top priority this year, while imports and exports would steadily increase. Again, like India the focus is on consumption and decarbonization. India equities too, saw gains as the Adani Group continues to make efforts to reassure investors. We are overweight EM Asia.

Written by:


This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), licensed and regulated by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“SCA”) and subject to regulation, supervision and control of the Central Bank and SCA, having its head office at Baniyas Road, Deira, PO Box 777, Dubai, United Arab Emirates. This document may be distributed and/or made available by the Bank and its affiliates and subsidiaries, including Emirates NBD Capital KSA CJSC (“ENBD Capital”) (through its website, its branches or through any other modes, whether electronically or otherwise).

Emirates NBD and its affiliates, subsidiaries and group entities, including its shareholders, directors, officers, employees and agents are collectively referred to Emirates NBD Group.

Any person (hereinafter referred to as “you”, “your”) who has received this document or have access to this document shall acknowledge and agree to the following terms.


Data/information provided in this document are intended solely for information or illustrative purposes and are not designed to initiate or conclude any transaction.

This publication may include data/information taken from stock exchanges or other third-party sources from around the world, which Emirates NBD reasonably believes to be reliable, fair and not misleading, but which have not been independently verified. The provision of certain data/information in this publication may be subject to the terms and conditions of other agreements to which Emirates NBD is a party. Opinions, estimates and expressions of judgment are those of the writer and are subject to change without notice. Emirates NBD or any member of Emirates NBD Group makes no representation or warranty and accepts no responsibility or liability for the sequence, accuracy, completeness or timeliness of the information or opinions contained in this publication. Nothing contained in this publication shall be construed as an assurance by Emirates NBD that you may rely upon or act on any information or data provided herein, without further independent verification of the same by you.

The contents of this document are prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors, including those relevant to the determination of whether a particular investment activity is advisable. Emirates NBD does not undertake any obligation to issue any further publications or update the contents of this document. Emirates NBD may also, at its sole discretion, update or change the contents herein without notice. Emirates NBD or any member of Emirates NBD Group does not accepts no responsibility whatsoever for any loss or damage caused by any act or omission by you as a result of the information contained in this publication (including by negligence).

References to any financial instrument or investment product in this document are not intended to imply that an actual trading market exists for such instrument or product. Certain investment products mentioned in this document may not be eligible for sale in some jurisdictions, and they maynot be suitable for all types of investors. The information and opinions contained in this publication is provided for informational purposes only and have not been prepared with any regard to the objectives, financial situation and particular needs of any specific person, wherever situated. If you wish to rely on or use the information contained in this publication, you should carefully consider whether any investment views and investment products mentioned herein are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You should also independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professional advisers or experts.


This publication may be provided to you upon request (and not for distribution to the general public), on a confidential basis for informational purposes only, and is not intended for trading purposes or to be passed on or disclosed to any other person and/or to any jurisdiction that would render the distribution illegal.


None of the content in this publication constitutes a solicitation, offer, recommendation or opinion by Emirates NBD to buy, sell or trade in any security or to avail of any service in any jurisdiction. This document is not intended to serve as authoritative legal, tax, accounting, or investment advice regarding any security or investment, including the profitability or suitability thereof and further does not provide any fiduciary or financial advice. This document should also not be used in substitution for the exercise of the prospective investor’s judgment.

Third Party

This publication is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. It is the responsibility of any person in possession of this publication to investigate and observe all applicable laws and regulations of the relevant jurisdiction. This publication may not be conveyed to or used by a third party without the express consent of Emirates NBD or its affiliates, subsidiaries or group entities distributing this document. You should not use the data in this publication in any way to improve the quality of any data sold or contributed by you to any third party.


Notwithstanding anything to the contrary set forth herein, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from this publication including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. Under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of this publication, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business.

This publication does not provide individually tailored investment advice and is prepared without regard to the individual financial circumstances and objectives of person who receive it. The appropriateness of an investment activity or strategy will depend on the person’s individual circumstances and objectives and these activities may not be suitable for all persons. In addition, before entering into any transaction, prospective investors should: (i) ensure that they fully understand the potential risks and rewards of that transaction; (ii) determine independently whether that transaction is appropriate given an investor’s investment objectives, experience, financial and operational resources, and other relevant circumstances; (iii) understand that any rates of tax and zakat or any relief in relation thereto, as may be referred to in this publication may be subject to change over time; (iv) consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment; (v) understand the nature of the investment and the related contract (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk; and (vi) understand any regulatory requirements and restrictions applicable to the prospective investor

Forward Looking

Past performance is not necessarily a guide to future performance and should not be seen as an indication of future performance of any investment activity. The information contained in this publication does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Estimates of future performance are based on assumptions that may not be realized.


Data included in this publication may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records. The use of this publication is at the sole risk of the investor and this publication, and anything contained herein, is provided "as is" and "as available." Emirates NBD makes no warranty of any kind, express or implied, as to this publication, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.

Investment in financial instruments involves risks and returns may vary. The value of investment products mentioned in this document may neither be capital protected nor guaranteed and the value of the investment product and the income derived therefrom can fall as well as rise and an investormay lose the principal amount invested. Investment products are subject to several risks factors, including without limitation, market risk, high volatility, credit and default risk, illiquidity, currency risk and interest rate risk. It should be noted that the value, price or income of securities denominated in a foreign currency may be adversely affected by changes in the currency rates. It may be difficult for the investor to sell or realise the security and to obtain reliable information about its value or the extent of the risks to which it is exposed. Furthermore, the investor will not have the right to cancel a subscription for securities once such subscription has been made. Prospective investors are hereby informed that the applicable regulations in certain jurisdictions may place certain restrictions on secondary market activities with respect to securities.

Before making an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment. In receiving this publication, the investor acknowledges it is fully aware that there are risks associated with investment activities. Moreover, the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described in this publication and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with the investor.

Intellectual property

This publication has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and such others. All present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall, as between the investor and Emirates NBD, at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties.

Except as specifically permitted in writing, you should not copy or make any use of the content of this publication or any portion thereof or publish, circulate, reproduce, distribute or offer this publication for sale in whole or in part to any other person over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet or construct a database of any kind. Except as specifically permitted in writing, you shall not use the intellectual property rights connected with this publication, or the names of any individual participant in, or contributor to, the content of this publication, or any variations or derivatives thereof, for any purpose. This publication is intended solely for non-commercial use and benefit, and not for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. By accepting this publication, you agree not to use, transfer, distribute, copy, reproduce, publish, display, modify, create, or dispose of any information contained in this publication in any manner that could compete with the business interests of Emirates NBD. Furthermore, you should not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you, except as otherwise provided with Emirates NBD’s prior written consent. You shall have no ownership rights in and to any of such items.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the London branch of Emirates NBD Bank (P.J.S.C) which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority in the UK. Some investments and services are not available to clients of the London Branch. Any services provided by Emirates NBD Bank (P.J.S.C) outside the UK will not be regulated by the FCA and you will not receive all the protections afforded to retail customers under the FCA regime, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme. Changes in foreign exchange rates may affect any of the returns or income set out within this publication.


This publication was prepared by Emirates NBD Bank (P.J.S.C) in the United Arab Emirates. It has been issued and approved for distribution to clients by the Singapore branch of Emirates NBD Bank (P.J.S.C) which is licensed by the Monetary Authority of Singapore (MAS) and subject to applicable laws (including the Financial Advisers Act (FAA) and the Securities and Futures Act (SFA). Any services provided by Emirates NBD Bank (P.J.S.C) outside Singapore will not be regulated by the MAS or subject to the provisions of the FAA and/or SFA, and you will not receive all the protections afforded to retail customers under the FAA and/or SFA. Changes in foreign exchange rates may affect any of the returns or income set out within this publication. Please contact your Relationship Manager for further details or for clarification of the contents, where appropriate. For contact information, please visit


Emirates NBD Capital KSA CJSC (“ENBD Capital”), whose registered office is at P.O. Box 341777, Riyadh 11333, Kingdom of Saudi Arabia, is a Saudi closed joint stock company licensed by the Saudi Arabian Capital Market Authority (“CMA”) under License number 37-07086 dated 29/08/2007G (corresponding to 16/08/1428H) to deliver a full range of quality investment products and related support services to individuals and institutions in the Kingdom of Saudi Arabia. ENBD Capital is subject to Capital Market Law, and Implementing Regulations in the Kingdom of Saudi Arabia

ENBD Capital’s contact details are T +966 (11) 299 3900 and F +966 (11) 299 3955.

This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Investment Funds Regulations issued by the Capital Market Authority.

The Capital Market Authority does not make any representation as to the accuracy or completeness of this document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective subscribers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities offered. If you do not understand the contents of this document, you should consult an authorised financial adviser.