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“Conditions have evolved – and so have our views of the economy and markets.”
That is how Bridgewater Associates has reacted to the macro changes of recent weeks, with monetary loosening re-priced in by markets and bond yields falling.
“Central bank policy has become materially less constrained by inflation (at least in the short term). This is a big deal,” said co-CIO Greg Jensen and two colleagues in a daily note sent out on Tuesday.
“The worst-case scenario for assets and the economy, in which central banks have to remain tight in a downturn due to elevated inflation pressures, is off the table for now.”
The world’s largest hedge fund manager’s note captures the shift in market/macro perspective neatly after the data releases and central bank meetings of recent weeks, which undermined confidence in the “higher-for-longer” rates outlook.
“Markets are now discounting material rate cuts in most major developed economies while equities are pricing in healthy profits. This creates some risks to the current pricing.”
For now, Bridgewater sees “opportunities mostly in differential bets across economies rather rather than in outright views.”
“Our estimates indicate much more need for the BoE and the ECB to ease than the Fed, and reduced economic risk and lower interest rates in large developed economies will likely incentivize capital to move to more attractively priced assets globally.”