Standard Chartered expects the US Federal Reserve to raise interest rates twice more by mid-2027 as accelerating artificial intelligence (AI) investment and persistent inflation increase the possibility of stronger-than-anticipated economic growth.
In its latest market outlook, the bank said the likelihood of the US economy shifting from its base-case soft-landing scenario to a “no-landing” scenario had increased, supported by sustained AI-related investment.
It also expects the Bank of Japan to raise rates three more times and the European Central Bank to deliver one additional increase.
Despite the prospect of higher interest rates and bond yields, Standard Chartered remains positive on global equities, citing robust corporate earnings and economic growth.
The bank argued that the current environment more closely resembles the interest rate increases of the 1990s, when equities continued to advance alongside strong growth, rather than the inflation-driven tightening cycle of 2022.
Equity Pullbacks Seen As Buying Opportunities
Standard Chartered maintained its overweight position in equities relative to bonds and cash, although it cautioned against excessive equity exposure.
The bank favours US and Asia ex-Japan equities, where earnings expectations remain strong.
Within Asia, it has reduced its allocation to Chinese equities to a core holding, leaving Taiwan as its only regional overweight position, reflecting its preference for markets benefiting from AI investment.
It expects market volatility to persist around the US midterm elections but views further equity pullbacks as potential opportunities to increase exposure.
Corporate And Emerging Market Bonds Preferred
In fixed income, Standard Chartered favours corporate and emerging market bonds over government securities, citing strong underlying credit quality and the prospect of continued volatility in longer-maturity bonds.
It recommended maintaining bond durations of three to seven years to limit exposure to rising term premiums associated with inflation and government debt concerns.
The bank remains overweight emerging market US dollar bonds, while treating investment-grade and high-yield corporate bonds as core holdings.
Modest US Dollar Weakness, Further Gold Gains Expected
Standard Chartered expects the US dollar to resume a modest weakening trend, arguing that markets may have priced in excessive Fed tightening.
It sees scope for further interest rate increases outside the US, particularly in Japan, which could support the yen.
The bank also expects gold to rise over the next three and 12 months, supported by a softer dollar and continued demand from emerging market central banks.
However, it cautioned that gold’s advance is unlikely to be uninterrupted, with periodic corrections expected along the way.
