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
May overview: While the Middle East conflict remained center stage in May, see-sawing news on the status of negotiations drove similar moves in financial markets as investors focused on the prospects of a resolution, but negotiators did not deliver one by month-end. Ultimately, market moves over the month were relatively restrained despite some volatility during the period. The US dollar (USD) was modestly stronger on balance in May. US Treasury yields were somewhat higher, while other bond markets exhibited mixed performance. Emerging market (EM) bond indexes gained in aggregate over the month. Inflation data have been tending to move higher, showing evidence of the impact of higher energy prices, but some countries have seen core inflation measures move higher as well. Central banks continued to turn more hawkish over the past few months, with some raising rates during May. Growth data mostly continued to show some resilience despite some pockets of softness.
Outlook: Uncertainty about growth and inflation stemming from the Middle East conflict continues to dominate 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 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 Middle East conflict. Our thesis of “global rewiring” remains intact, and we expect global relations to continue shifting and realigning for some time yet.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. There is no assurance that any estimate, forecast, or projection will be realized.
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.
WF: 10904058