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Value Partners Group, one of Asia's largest independent asset management firms, has just released a Fixed Income Investment Outlook for China and Asia. Here is an executive summary.

US: Rates To Stay Restrictive

Despite the overall restrictive monetary tone for most of the year, economic data for the US has remained surprisingly resilient in 3Q23, which bolstered hopes of a soft landing. After pausing in June, the Fed raised rates by 25bps in July, and the market priced in odds of another hike by the year-end. The Fed's hawkish tone is expected to prevail as more time is needed to ensure inflation returns to its target and as it considers the cumulative effect of monetary tightening on the economy.

We believe the Fed's narrative on keeping rates "higher for longer" will stay for the remainder of 2023 - underlying growth appears to remain quite solid, and inflation is still some way far from the target. Although high energy prices are already on the Fed's radar, we are mindful of any Israel-Hamas war-induced upward trend, which may add incremental pressure on headline inflation.

The strong and durable labour demand continues to provide some buffer to household income and private consumption. Nevertheless, with restrictive rates taking a toll on the economy, we continue to expect job and inflation data to soften and show signs of weakness. Some downward pressure on growth may arise, given the potential weakening in payrolls, consumpti......................

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