The GIV elaborates on the latest views, convictions and outlook of our Global CIOs, Investment Platforms and the Amundi Investment Institute.
Ongoing conflict lifts inflation expectations
With the Middle East conflict now entering its second month, high energy prices have produced knock-on effects across global financial markets. The US and European breakeven curves surged as markets repriced inflation expectations and the likelihood of central-bank rate cuts. Nominal yields, particularly at the short end, also rose sharply in countries including the UK. At this stage, some of this reaction seems excessive to us. We think the length of time that energy prices remain high will determine the second‑round inflationary effects.
Active, disciplined duration management
The inflation story has received greater attention because of high energy prices and supply disruptions. As a result, markets are pricing in rate hikes by the ECB and the BoE. Although we have revised our assessment of monetary policy, we do not currently expect central banks to raise rates. We expect them to pause to await greater clarity on the crisis and on supply disruptions before making any decision.
Focus on areas of long-term resilience
Volatility in equities is explained by the Iran conflict, but importantly, some sections that are pulling back are the ones that have performed well so far this year. Now, the key uncertainty is the duration of the conflict. If tensions ease in the coming weeks, oil prices should normalise, and the current volatility may present attractive entry points across sectors. However, estimating the timing of this will be difficult.
Tactically cautious, enhanced safeguards
Recent events in the Middle East have allowed us to take a step back and reassess how our long-term views will play out. We believe the duration for which energy prices stay high will determine the pass-through of this crisis to the economy. While our macro signals are still calling for a late-cycle environment, they do not fully include the impact of a prolonged crisis. Hence, from a near-term perspective, we have reduced our directional views on risk assets. Secondly, we believe there is a need to strengthen hedges, particularly on DM equities. Overall, it is important to stay diversified and acknowledge that some market movements may have been excessive.
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