With inflation expected to remain above central banks’ targets in 2023, Credit Suisse advises against anticipating any interest rate reductions.

According to Credit Suisse, inflation is anticipated to remain above central banks’ objectives in 2023.

According to the bank, this will probably prevent the Federal Reserve from lowering interest rates in 2019.

Strategists predicted that 2023 would be a “tale of two halves,” with expectations for a Fed pivot increasing throughout the year.

According to Credit Suisse, any market expectations that the Federal Reserve and other significant central banks will be able to start lowering interest rates in 2023 may be unfounded because inflation will continue to exceed official targets.

According to Swiss bank analysts in a 2023 outlook report, money will remain scarce, and ongoing economic and geopolitical risks will keep markets volatile.

According to the bank, this means that markets will likely initially concentrate on a “higher rates for longer” theme, which should result in a muted performance of equity markets.

According to the strategists under the direction of Philip Lisibach, “inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023.” However, “it will continue to exceed central bank targets in most of the major developed economies, including the United States, the United Kingdom, and the Eurozone, in 2023.”

“We do not see any developed market central bank cutting interest rates next year,” they continued.

Longer rates at higher rates

Bank strategists stated, “We view 2023 as a tale of two halves.

High interest rates are anticipated to dominate the first half, which is expected to be supportive of value equities, according to the bank.

According to Lisibach’s team, the markets “are likely to first focus on the ‘higher rates for longer’ theme, which should lead to a muted equity performance.” “We anticipate better performance in this environment from sectors and regions with stable earnings, low leverage, and pricing power.”

According to Credit Suisse, market expectations for a Fed policy shift toward a less hawkish one are expected to increase in the second half of 2023. This is expected to support growth stocks, which profit more from low interest rates because they can increase their cash flows through less expensive borrowing.

“We would rotate toward interest-rate-sensitive sectors with a growth tilt once we get closer to a pivot by central banks away from tight monetary policy,” the bank said.

With the ongoing conflict in Ukraine and rising interest rates weighing on growth, Credit Suisse also predicted that the US will be one of the few economies to avoid entering a recession in 2019.

Strategists predicted that the economies of the UK, Eurozone, and China “should bottom out by mid-2023 and begin a weak, tentative recovery” – a scenario that depends critically on the US avoiding a recession. “Amid tight monetary conditions and the ongoing geopolitical reset, economic growth will generally remain low in 2023.”