Adam Kibble, fund manager of multi-asset Australia at Schroders, said the firm’s outlook is more optimistic than consensus and points to a global economy supported by resilient consumer spending and an ongoing artificial intelligence (AI) capital expenditure boom.
“We continue to be more optimistic than consensus about the global economy and expect growth across both developed and developing economies to be higher in 2026 than this year,” Kibble said.
He added that wages growth and tighter labour markets are likely to result in “marginally higher inflation”, suggesting central banks are now near the end of their easing cycle and interest rates have reached their lows.
In the United States, Kibble noted that data remains limited due to the government shutdown, though consumer spending and AI-driven investment are holding growth around two per cent.
Inflation data for September came in below expectations, largely because of weaker housing and rental components, he said.
Moreover, the US Federal Reserve has cut rates to 3.85 per cent, with chair Jerome Powell guiding markets away from anticipating another reduction in December.
“At the time of writing, market pricing for a December cut has shifted from 100 per cent certainty down to a 65 per cent probability,” Kibble said.
Markets are also pricing a terminal rate of three per cent by the end of 2026, but Kibble warned that outlook “too aggressive” given the firm’s expectations of stronger growth and inflation.
In Australia, the September quarter CPI data has surprised to the upside, lifting annual inflation back to three per cent and likely keeping the Reserve Bank of Australia on hold, he said.
“If our view is correct and economic growth is on an upswing, then the risk is further tightness in the labour market and more pressure on wages.”
In Europe, the European Central Bank has kept rates steady, appearing “more confident on European growth prospects” as looser fiscal policy and easier financial conditions support the economy.
Kibble said Schroders has positioned its portfolios for a turn in the monetary policy cycle by trimming both interest rate and credit risk.
“We reduced duration to below 0.50 years and have maintained that position as we expected inflation to be above the RBA’s forecast,” he said.
Within credit markets, Schroders has moved up in quality within the banking sector, cutting exposure to subordinated bank debt by seven per cent and senior bank debt by five per cent, while adding five per cent in semi-government securities.
The firm has also increased credit default protection by three per cent across US and European high-yield and investment-grade markets, with spreads “historically tight”.
In Australian residential mortgage-backed securities, Schroders shifted eight per cent of older bank issues into new mutual-sector deals, increasing overall RMBS exposure to 27 per cent of the portfolio.
The firm further stated that foreign currency exposures have detracted from returns amid a rebound in the US dollar.
“We continue to keep the Australian dollar short position to a minimum as we expect the AUD to benefit from the RBA being on hold,” Kibble said.
He added that Schroders remains long the Japanese yen as “the best risk-off hedge in currency”, expecting the Bank of Japan to resume tightening given persistent inflation and wages growth.
“With a more optimistic growth outlook for 2026, we view current yields at their cycle lows,” Kibble said. “Credit markets are fully discounting good times ahead … but if spreads widen, the portfolio is highly liquid and well positioned to add credit risk as value is restored.”
