Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

BlackRock Commentary: New regime, new opportunities

Jean Bovin – Head of BlackRock Investment Institute, together with Wei Li – Global Chief Investment Strategist, Alex Brazier – Deputy Head, and Vivek Paul – Head of Portfolio Research all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points

Evolving our playbook: We see different and abundant opportunities in the new macro regime. We go granular within asset classes, regions and sectors – and harness mega forces.

Market backdrop: Short-term bond yields rose last week as markets priced policy rates staying tight after U.S. data confirmed persistent inflation and activity holding up.

Week ahead: U.S. jobs data is in focus this week. We think labor shortages have made firms reluctant to let workers go, keeping unemployment low even as growth sputters.

We see major central banks holding policy tight in the new macro regime. That bolsters income’s appeal. We’re also pivoting to new opportunities, evolving our playbook to go granular across asset classes, regions and sectors: The outlook is brightening for Japanese stocks, and we like emerging market (EM) debt as policy looks poised to loosen. We harness mega forces as well, leaning into the digital disruption of AI and private credit as it plays a bigger role in the future of finance.

Markets have come around to the view that major central banks will not quickly ease policy in a world shaped by supply constraints – notably worker shortages in the U.S. Developed markets (DM) can no longer produce as much without sparking higher inflation. So, central banks are holding tight, the first new investment theme in our 2023 midyear outlook. That’s a big change from the low-rate environment norm prior to the pandemic. Take the Federal Reserve. It has kept monetary policy loose since the early 1990s – and was quick to cut rates when recessions hit. See the yellow line and gray shaded areas in the chart. We don’t see the Fed coming to the rescue. We see more supply constraints in the future compelling central banks to keep policy rates above neutral rates (red line), the estimated policy rate that neither stimulates nor depresses economic growth. That means policy is going to stay in restrictive territory.

Policy rates staying tight bolsters the appeal of income – and the case for short-dated government paper. Three-month U.S. Treasury bill yields hit 22-year highs near 5.60% in June. We stay underweight long-term U.S. government bonds as we expect investors to demand more compensation for holding them given sticky inflation. Yet long-term bonds in the euro area and the UK are better pricing higher rates, so we’re tactically neutral. We stay strategically overweight inflation-linked bonds on persistent inflation. But tactically, we prefer the U.S. over the euro area given current market pricing of each.

The new layers of our playbook

The macro backdrop is not friendly for broad asset class returns, but opportunities abound depending on how much of the macro is in asset prices. So we’re pivoting to new opportunities, our second theme, and getting granular. We’re modestly underweight DM equities in our six- to 12-month tactical view as they still don’t price the damage from rate hikes. But Japan stands out. We upgrade Japan stocks to neutral. Why? Fewer supply constraints, supportive policy and corporate reforms. We tactically prefer EM equities to DM peers as EM policy looks closer to easing. But on a strategic horizon of five years and beyond, we’re overweight DM stocks as we see returns above bonds’ with growth returning and inflation lingering in the U.S.

Our third theme, harnessing mega forces, aims to leverage structural shifts that transcend the macro: digital disruption and AI, geopolitical fragmentation, the low-carbon transition, aging populations and the future of finance. The key is gauging what markets have priced in. We see these mega forces driving returns today and in the future. Case in point: The dip in semiconductor shares last week on potential U.S. export restrictions to China after this year’s surge shows how mega forces like AI and geopolitical fragmentation can interact and impact markets now. We’re overweight AI as a multi-country, multi-sector investment cycle unfolds, bolstering revenues and margins. We see geopolitical fragmentation rewiring supply chains and putting national security and resilience above efficiency. The upshot: We expect a surge in investment in areas like tech, clean energy, infrastructure and defense. We see other opportunities in the low-carbon transition’s large capital reallocation – and across the energy system to get in front of shifts before markets. We also see regulatory and competition challenges for incumbent banks in the fast-evolving financial system, but also opportunities for non-bank lenders. We think private credit could help fill a void left by banks pulling back on lending after the tumult this year.

Bottom line

We’re pivoting to new opportunities by getting granular as a tight policy environment makes it tough for broad asset class returns. We also harness mega forces to tap into structural shifts and upside beyond the macro backdrop.

Market backdrop

Short-term DM bond yields climbed last week as the market priced policy rates staying tight. The two-year U.S. Treasury yield pushed above 4.90%, pulling the U.S. yield curve near its most inverted level since the early 1980s. U.S. stocks hit 14-month highs after Q1 U.S. data on output and income was revised up. We think activity is holding up thanks to households spending pandemic savings – and persistent inflation as seen in PCE data may mean policy rates need to go even higher.

The focus in next week’s U.S. job report will be prevailing signs of a resilient labor market even with tight monetary policy. We see labor shortages fueling wage growth and keeping inflation stubbornly high as companies hold on to workers even as demand drops. That poses the unusual risk of “full employment recessions,” where the unemployment rate stays low. 

Week Ahead

July 3: U.S. ISM manufacturing PMI

July 4: Reserve Bank of Australia policy decision

July 5: China Caixin services PMI; S&P global services PMIs; 

July 7: U.S. jobs report

BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of 3rd July, 2023 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Information Document (KID), which may be obtained from MeDirect Bank (Malta) plc.

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

Staying dynamic in our strategic views
All News

BlackRock Commentary: Staying dynamic in our strategic views

BlackRock anticipates that the new macroeconomic environment, characterized by increased volatility, will lead to more frequent valuation changes across asset classes. While short-term outcomes may not always be influenced by valuations, they remain significant in the long run.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 

Sign up and open your account for free, within minutes.



We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.