For Paul Jackson, senior investment strategist at American wealth manager Invesco, the worst is apparently over.

"The markets are already in a phase in which they are transitioning from slowdown to recovery," he says in an interview with the FAZ. They anticipated the changing economic situation.

Jackson believes that this will be difficult in the coming year given the probable recession, but is unlikely to be dramatic.

Markus Fruehauf

Editor in Business.

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The development of inflation is decisive for the markets.

This peaked for Jackson in the United States in June and in the euro zone in October.

“Inflation can fall very quickly in the coming year,” adds the Invesco strategist.

He expects gas prices to be below the current level for a twelve-month period.

Jackson already has the end of the interest rate hike cycle in mind: The American Federal Reserve (Fed) is likely to raise interest rates by May or June, according to his estimates, and the European Central Bank (ECB) is likely to end its tightening course a little later, in the second half of 2023.

In late 2023 or early 2024, Jackson thinks it's possible that the Fed will start cutting rates again.

For him, the risks lie on the one hand in unexpectedly persistently high inflation, which would force the central banks to take further aggressive interest rate hikes.

On the other hand, there is the risk of a deep recession, which could force investors to avoid risky assets such as corporate bonds or stocks.

A significant slump in growth also entails risks for the financial system if loan defaults increase dramatically.

Economic downturn hits Europe harder

In the coming year, it is possible that headline inflation will fall below core inflation adjusted for energy and food prices.

According to Jackson, the recession will also depress core inflation, but this will remain above the ECB's target rate of 2 percent for a long time.

In his view, a rapprochement may take up to 2025.

"The economic slowdown will hit Europe harder than the USA," the Invesco strategist is convinced.

This is due to the higher burden of higher energy prices and the greater impact of sanctions against Russia.

“It will be a painful but not dramatic recession.

A recovery is even possible in the second half of the year,” he says.

Should the recovery in markets strengthen, Jackson thinks it's likely that almost all assets will do well in the year ahead.

He prefers corporate bonds: Experience has shown that high yields in particular, i.e. the high-yield debt securities of financially weak companies, do very well in such an environment.

Stocks and real estate would also benefit from falling bond yields.

Gold may recoup some of the losses suffered this year.

In addition to lower bond yields, the weaker dollar supports the precious metal.

According to him, the only asset class with a positive development this year was commodities.

"They are likely to be among the losers in the coming year," the strategist expects.

He looks at the dollar with suspense: the American currency has benefited this year above all from the fact that the interest rate differential between the USA and Europe has developed in its favour.

Market expectations that the Fed would tighten more aggressively than the ECB have come true.

“Only now the ECB has also embarked on an aggressive tightening stance and the interest rate differential has turned against the dollar.

This will continue to weigh on the American currency in the coming year.”

The dollar is at its most expensive on a trade weight basis since the mid-1980s, Jackson adds.

A weaker dollar will have a positive impact on emerging markets, whose bonds, stocks and currencies have good prospects in the coming year.