The global economy is set for a diverse trajectory in the second half of the year, with major economies showing signs of stabilization while other regions present a more mixed picture.
In the United States, a growth slowdown is anticipated due to easing consumer spending and a weakening labor market. Based on inflation data, including slower wage growth, our core forecast projects the Federal Reserve’s first rate cut in September, followed by a second 25-basis-point cut in December. Europe, including Germany, appears to be in a state of moderate recovery. In Asia, China’s May property support policies are in place, but any recovery is expected to be gradual and moderate, impacted also by increasing trade friction with the West.
Equity markets reflect this varied outlook. US indices continue to rise, driven by strong growth prospects and rate cut expectations, but gains remain concentrated in a few mega-cap tech stocks, with valuations often appearing bubbly. European equities are viewed as overall neutral, though we retain interest given avoided recession, improving manufacturing, and potential earlier rate cuts than the US. Japan’s TOPIX shows strong earnings growth, with forward P/E still well below its long-term average. For Asia excluding Japan, we are cautiously optimistic on China short-term (awaiting policy follow-through), remain structurally bullish on India, and cautious on ASEAN until the Fed begins cutting (due to weak earnings and USD strength). Taiwan leads in tech (semis soaring YTD), while South Korea might catch up. AI-related sectors are expected to maintain growth momentum.
In fixed income, extending duration in quality government bonds is attractive before potential US/Europe rate cuts, given currently high yields. For corporate bonds, we remain underweight non-investment grade due to refinancing challenges. We are more cautious on US investment grade (tight spreads, delayed cuts) but see specific quality opportunities. US cash and equivalents offer high relative appeal, rewarding liquidity holders.
Facing uncertainty (US election, geopolitics), persistent high long-term rates, and tight credit spreads, the “Goldilocks” scenario is challenged. Active management is crucial. We focus on three key themes for H2: leveraging the recovery in M&A, capturing the potential of Artificial Intelligence, and seizing structural opportunities related to electrification, decarbonization, and digitalization.
Riley Evans 
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