CONTRIBUTORS
Michael Hasenstab, Ph.D.
Portfolio Manager, Chief Investment Officer, Templeton Global Macro®
Calvin Ho, Ph.D.
Portfolio Manager, Director of Research, Templeton Global Macro
Key takeaways
June overview: In the Middle East, the United States and Iran signed a Memorandum of Understanding on June 17 to extend the ceasefire, open the Strait of Hormuz and create a window for talks. The development gave market sentiment a lift, even though there was some conflict again closer to month-end. The US dollar (USD) strengthened in June, while the Japanese yen reached 40-year lows against the USD. Developed bond markets exhibited mixed performance, with US and Japanese yields slightly higher but Australian and most European yields lower. Emerging market (EM) local-currency bond yields were mostly lower, while hard-currency EM bond indexes gained in aggregate over the month. Inflation remains at relatively high levels across a number of countries, but some have seen price momentum slowing more recently. The generally increasing hawkishness seen among central banks over the past few months continued with some hiking—including rate increases from the European Central Bank (ECB) and Bank of Japan (BoJ) in June—but there are still some EMs that are easing. Growth data mostly continued to show some resilience, but pockets of weakness remain, especially in Europe.
Outlook: Uncertainty about growth and inflation stemming from the Iran conflict continues to cast a shadow over the global economic outlook, and we are closely monitoring developments on this front. In its latest World Economic Outlook, the International Monetary Fund (IMF) has modestly downgraded its global growth forecast, but notes significant downside risks, including a longer or broader conflict and worsening geopolitical fragmentation. It continues to project EM growth to significantly outperform advanced economies. Among EMs, we highlight that while resilience remains a notable broad factor, differing sensitivities and policy to the oil shock require careful country-by-country analysis. Uncertainty about the path of monetary policy remains high under current circumstances, with various central banks pointing to growth and inflation risks stemming from the Iran conflict. Despite the current geopolitical backdrop, recent developments appear to confirm our thesis of “global rewiring,” and we expect global relations to continue shifting and realigning for some time yet.
This month’s Global Macro Insights offers a comprehensive update on regional developments, along with analysis of the key opportunities and challenges shaping the current macroeconomic landscape.
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