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
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.
Key takeaways
April overview: The Middle East conflict continued to dominate news headlines in April, and oil prices remained at elevated levels. There was nevertheless some improvement in risk sentiment over the month compared to the earlier risk-off market reactions—the US dollar (USD) weakened, while US Treasury yields rose slightly and emerging market (EM) bonds gained over the month. Developed market central banks that held meetings during April left interest rates unchanged, but noted the risks to both growth and inflation outlooks from the war, and we see some signs of hawkishness creeping in. Some inflation data are already showing evidence of the impact of higher energy prices. Growth data mostly continued to show some resilience even as outcomes remained fairly soft.
Outlook: Uncertainty about growth and inflation stemming from the Iran conflict has dominated the conversation about the global economic outlook. The International Monetary Fund (IMF), in its latest World Economic Outlook (WEO), has modestly downgraded its global growth forecast, but notes that downside risks dominate the outlook, with these 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 responses to the oil shock require careful country-by-country analysis. Uncertainty about the path of monetary policy also remains high under current circumstances, with various central banks pointing to growth and inflation risks stemming from the Iran conflict. Our thesis of “global rewiring” remains intact.
WHAT ARE THE RISKS?
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Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Currency management strategies could result in losses if currencies do not perform as expected.
Active management does not ensure gains or protect against market declines.
Diversification does not guarantee a profit or protect against a loss.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.
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