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Tuesday 02 May 2023
Global Investment Views, Equity, Fixed income
May 2023 | We see a deteriorating US economic environment amid the Fed's slowing monetary tightening, rising costs of credit for the real economy, and stubborn core inflation, particularly in Europe. A weak US economy is unlikely to leave Europe untouched. Thus, we suggest maintaining a cautious tilt on risk assets, strengthening hedges, and utilizing the safe haven characteristics of US Treasuries. On the last issue, the Fed is close to the end of its tightening cycle and this may create opportunities in the medium term range of the yield curve.
01 | The broader equity markets have digested the March turmoil, but the disruption continues to be evident in the US regional banking sector, which is not showing signs of recovery.
02 | While we do not see systemic issues, tightening financial conditions are increasing risks to the downside that are not priced into risky assets.
03 | We expect a weak global growth outlook, with a US recession, a weak outlook in Europe, and a rebound in Asia from China's reopening that will not be able to offset US deceleration.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of April 27, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
In addition to central banks' policies and inflation trends, we believe domestic politics and their impact on international relations will be important determinants of financial markets and economic direction. Our economic outlook is relatively robust, but valuations are tight in some areas of risk assets, allowing us to stay slightly positive on equities overall. However, we reduced our stance slightly in developed market equities and believe investors should consider building protection in some areas here. In bonds, we are constructive on US duration and core Europe, while we maintain our cautious stance on Japan. In corporate credit, EU investment grade is our favorite area.
In developed markets, we move to neutral from positive on Japan and we see scope for rebalancing in favor of the UK, European small caps and the US. While the US is displaying strong earnings, we believe Europe should benefit from the moderately resilient economic environment and rate cuts. In government bonds, we are positive on the US and core Europe, along with Italy. In credit, valuations in Euro investment grade appear attractive. We also look for selective opportunities across emerging markets and see oil as providing protection from geopolitical risks.
Recent inflation and growth data from the US indicates continued strength in the economy, leading Amundi and various institutions including the International Monetary Fund, to revise US growth forecasts upward. We believe current strong momentum will continue into Q2, but expect a deceleration in H2. Inflation data also points to stickier prices, with upside risks, especially around oil, from the recent geopolitical escalation, opening a difficult phase for central banks. We expect fewer rate cuts but higher uncertainty around policy actions.
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