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Over the next 3-6 months, we think the rally in bonds will slow, while equities falter and the US dollar rebounds close to its recent high.

We think falling inflation and a loosening of monetary policy in line with our own forecasts is largely priced into financial markets. That underpins our view that the recent rally in government bonds will begin to run out of steam soon. However, we don’t think a recession is fully discounted. This is why we expect the S&P 500 to make a new cyclical end-of-day low, and the dollar to climb back towards its recent high. We think, though, that this will set the stage for a sustained rebound in the US stock market and weakness in the greenback as the economic outlook begins to brighten later in 2023.