The soft-landing scenario gains traction

Chief Investment Officer's team
19 June 2023
The soft-landing scenario gains traction


  • Last week saw four major central bank meetings, though few surprises with markets broadly appreciating
  • Fed paused but was hawkish, ECB hiked and guided for more, BoJ didn’t move and PBOC marginally cut rates
  • Our three profiles are now at their year high, with YTD returns ranging between +5% and 9%

Last week was extremely busy with four major central banks holding their policy meetings, as well as important data being released, from CPI inflation in the West to retail sales and industrial production in both the US and China.

To summarize: inflation remains too high in the West, and too slow to normalize. Both the Fed and the ECB responded with a hawkish tone, slightly more than what markets were expecting. The latter hiked and guided for another increase in July, while the former paused but opened the door to resume, with heightened levels of rate projections from voting members. By contrast, the PBoC cut two policy rates and injected more liquidity than expected, providing oxygen to banks, and the Bank of Japan stuck to their outright accommodative policy. Meanwhile, activity releases were underwhelming overall, especially in China, but the global economy is only slowly slowing, displaying, once again, resilience.

Markets didn’t dislike such an outcome. The prevailing scenario is that central banks will continue to pressure demand, but that economies should avoid a recession. Market action last week, with positive returns across most major asset classes, indicates that this “soft-landing” scenario is gaining traction, by enough at least to push conservative investors into more neutral positioning. We retain a slightly more cautious approach: our Chief Economist just changed their Fed forecast for “at least one more hike” and it’s pretty clear that we won’t have rate cuts anytime soon. This, we think, increases the risk of recession ahead and probably caps some of the returns to be expected in the medium-term. In the shorter run, our three profiles are fully benefitting and just reached new 2023 highs, though we maintain a marginally cautious positioning.

The soft-landing scenario gains traction

Cross-asset Update

The US May jobs report has undoubtedly made for a significant positive macro surprise, with monthly payrolls way above expectations and markets taking a pro-cyclical turn since then. Consumer discretionary stocks have continued to lead, yet closely followed by industrials and materials, rather than technology, pointing to a broadening of the rally to sectors more leveraged to the cycle, that to-date had achieved muted returns. Also, EM stocks have outperformed the S&P 500, the former up almost 4.7% in dollar terms, the latter 3%. And this can be traced down to a renewed prospect for additional stimulus by the Chinese authorities as well. Indeed, industrials and materials are exposed to the EM theme, alongside copper that has been rising for three weeks back-to-back from the lows of a protracted slump, a sign that further public intervention by Beijing is starting to get priced in. A delay in the much-expected US downturn, combined with positive news from China could sustain the current rally somewhat further, with the more pro-cyclical pockets of the market taking the baton from the so far dominating technology sector. We are not pushing back on a possible deterioration of the outlook, rather acknowledging that the recent events, alongside the backstop offered to US banks by the Fed, are going to delay a slump in US growth.

The backdrop remains constructive in the shorter term. Our cross-asset leading indicators point to an improvement in business confidence in the West, while expectations are growing for the announcement of a Chinese package at the July Politburo meeting. Yet, the bar is high for the rally to extend significantly, especially as far as the hopes-for Chinese measures are concerned. What would be needed from Beijing is not so much more cosmetic interventions on the supply side, but rather support on the demand side, that is currently flagging both in terms of private consumption and investments. On the one hand President Xi has been unwilling to flood the economy with public money in the more recent years, aiming more for the quality of growth, on the other something will have to be done for the yearly GDP target of 5% for 2023 to be met. For now, we would tend to see markets rising into the late-July announcement, with what is happening next being highly dependent on the content of the package. Late July will also by coincidence see more clarifications coming from the Fed, following the last policy meeting before the summer break.

Altogether, from a broader portfolio perspective we do not see reason for investors to take higher risks across the board. For instance, the earnings yield on the S&P 500 is about in line both with the USD cash yield, and the yield on IG corporate bonds, making US equities no longer the only game in town. A bias towards higher quality bonds, EM equities and the more undervalued pockets of DM stocks offers a more selective, hence sensible approach in our view.

The soft-landing scenario gains traction

The soft-landing scenario gains traction

The soft-landing scenario gains traction

Fixed Income Update

Last week four key central banks met with varying monetary policy decisions. The Fed finally paused, with Powell avoiding the word 'skip' in the presser while trying to sound hawkish. However, the markets believe the hawkish rhetoric sounds hollow, and June could be the true pause since the available data led them to increase the Dot plots for this year's terminal rates by 50 bps without hiking this time. As we have mentioned earlier, 'pause is not pivot.' The actual pivot will be when the Fed starts cutting rates which seems quite some time away.

The UST yield curve bear flattened, laying waste to the re-steepening trades. The 10-year yield ended the week at 3.76%, while the 2-year was at 4.71%. We find the front-end of the treasuries attractive again. With a 25bps hike priced in by the markets for the July FOMC meeting and the fed jawboning the markets with its latest dot plots, it is highly unlikely that we would see a sharp reprieve anytime soon. YTD HY spreads have compressed by more than 50bps and IG spreads have compressed by only 7bps. The HY vs IG spread at 368bps is below the median in the last 20 years. We are not being paid enough to hold high-yielding corporates at current prices and would suggest going the IG route.

On the other hand, the ECB failed to surprise by increasing rates by 25bps, with Governor Lagarde promising more hikes to come. PBoC cut its one-year policy rates by 10 bps. At the same time, according to a WSJ article, the government readies a fiscal stimulus package to revive the economy, including loosening property buying restrictions in top-tier cities, more infrastructure support, and targeted consumption subsidies. According to Reuters, the central bank is widely expected to cut its benchmark loan prime interest rates on Tuesday. BoJ meanwhile continued its dovish policy and remained on pause. Concerns are growing that the BoJ could end up falling behind the curve on inflation, similar to the Fed in 2021.

With BoE's meeting approaching this Thursday, the larger-than-expected acceleration in UK private sector pay growth will make for uncomfortable reading at the central bank. The central bank meets on Thursday when it is set to raise interest rates by a quarter point to a 15-year high of 4.75%. The balancing act for BoE becomes increasingly challenging as the economists warn that the UK economy faces a sharp recession rate hit the 6% level financial markets expect. We had highlighted the opportunity in GBP bonds earlier. BlackRock, Invesco, and Royal London are already dipping back into the market, arguing that traders are anticipating more hikes than the BOE is likely to deliver, and it's an opportunity to lock in some of the highest bond yields in the developed world.

This is again a week of central banks with as many as 19 banks set to meet. Within the Emerging Markets, the key meetings include Turkey, where the new governor is expected to reverse the trend of rate cuts to announce a significant hike in interest rates. Bloomberg consensus puts median estimates at 20% from the current 8.5%. This, and other policy tweaks could bolster investor sentiment on Turkey. Other key EM central banks scheduled this week are Indonesia, Egypt, Mexico, and Brazil.

The soft-landing scenario gains traction

The soft-landing scenario gains traction

Equity Update

Another upbeat week, with the first half of June adding 6% to global equity returns. Tech leads YTD returns at +37%, in spite of rising yields, but all global sectors were positive the last fortnight, with consumer and industrials outperforming. Emerging markets lead regionally in June with strong gains from China. In developed markets, Japan stands out in Yen returns, but overall in USD all 3 developed markets are parallel at +16% YTD total returns. . Except for Friday, which saw a small decline in the S&P 500, as it was a big day for options trading, the whole week saw positive closes. Small caps and regional banks are playing catch up, broadening the US equity rally. Not even hawkish Fed language - inflation lower but on an evidently longer trajectory - or rising geopolitical tensions around Russia/ Ukraine had an impact on markets.

Mixed uptakes from various half yearly outlooks from the big investment houses, with increases in expected returns to still anticipation of a sharp S&P 500 sell off. Our outlook will be out mid-July. We say this repeatedly, most years see two 5% and one 10% draw down. But average returns over the century have been 7% and over the last decade 10% for US equities. Very rarely are there 2 negative years. What’s making us optimistic about equities ending the year somewhere where they are now is the second quarter being the trough in earnings declines, peaking central bank tightening and still strong consumer demand. The S&P 500 ROE rose by 34bps to 20.4% in 1Q 2023, after declining for four straight quarters reflecting a better-than-expected 1Q earnings season and that the worst of the profit margin reset is likely behind us. Margins are lower than a year ago but no longer falling.

Also, the boost in productivity from AI progress is the one common factor all investment houses acknowledge. However, like .com investing that had largely unprofitable companies which went bust and caused the market crash in 2000, there are going to be plenty of .ai companies too with no worth. So, value and returns lie in being selective in tech and otherwise too while broadly investing in equities and remaining on the quality spectrum.

UAE markets continue to see a better performance from the Dubai bourse. Two sectors where we see upside in the UAE are banks and real estate. On banks the focus is Islamic banks with higher non-interest-bearing deposits. UAE banks are down 7% YTD with large dispersion within the sector. Real estate is seeing good offtake for off-plan developments and Emaar’s recent launch of the Oasis high-end villas seems to be getting good traction. The fundamental backdrop is supportive as PMIs and GDP growth remain amongst the best globally. However, profitability in 2024 will see the introduction of the corporate tax and potentially lower interest rates.

The soft-landing scenario gains traction

The soft-landing scenario gains traction

The soft-landing scenario gains traction

Written by:

This document is prepared by Emirates NBD Bank (P.J.S.C) (“the Bank” or “Emirates NBD”), a public joint stock company incorporated in Dubai, United Arab Emirates (UAE) and licensed to provide various financial services including promotion, financial consultation, securities portfolio management, managing investments of investment funds, etc. Emirates NBD is regulated supervised and controlled by the Central Bank of the UAE (“Central Bank”) and the Securities and Commodities Authority of the UAE (“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.

This publication is prepared without regard to the individual financial circumstances and objectives of persons who receive it. Data/information provided in this publication are intended solely for illustrative purposes for the general information or its recipients, irrespective of their customer classification as an Ordinary Investor or Professional Investor under the SCA Regulations.

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.


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 accept any 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 may not 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.

Where this publication provides any information about Shariah compliant products, the Bank will not have engaged a Shariah board (or similar body) to determine independently whether or not such products are compliant with Shariah principles. The Bank accepts no liability with respect to the fairness, correctness, accuracy, reasonableness or completeness of any such determination or guidance by any Shariah board that has certified or otherwise approved such products as Shariah compliant. Nothing contained in this publication shall be construed as a recommendation by the Bank to invest in such product. In deciding whether to invest in Shariah compliant products, you should satisfy yourself that investing in such products will not contravene Shariah principles. You should consult your own Shariah advisors as to whether investing in such products is compliant or not with Shariah principles.

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 investor may 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.