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Tuesday 28 June 2022
Global Investment Views, Equity, Fixed income
July 2022 | Dramatic price action has taken place over the past weeks in equities and bonds, following hot inflation prints, central bank actions and rising concerns over economic growth. Against this still highly volatile backdrop, investors should stay diversified and avoid adding risk as the market repricing, although advanced, is not over yet. This is the time to move towards high-quality areas and resilient business models that can preserve margins.
01 | Amundi Institute Insights: Western monetary policy has executed an impressive U-turn in the space of a few weeks, but significant monetary policy tightening will still be needed to rein in expectations about how fast prices will rise.
02 | Fixed Income: On yields, we may see some further volatility, but current levels are more attractive considering the direction of growth is down and inflation is reaching its peak.
03 | Equity: Security selection is the key to long-term returns, while we also play regional divergences and a preference for the US and China in the near term.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of June 28, 2022 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.
We predict that 2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are getting more attractive, and a Fed pivot in the first part of the year could trigger interesting entry points. We expect global growth to slow significantly, with several countries across both developed markets and EM suffering stagnation, while others may face a slowdown at best.
Markets have seen some recent relief in a year that overall is likely to be remembered as among the most challenging for investors. This recent market move has been supported by an alignment of stars on various fronts: (1) US inflation on a downward path, wherein we believe the market rally and the exuberance is excessive, as the Fed will remain focused on the inflation target and it is too early to claim victory there; (2) The earnings season was bad but not as bad as feared; (3) China’s COVID-19 policy relaxation, which has happened earlier than expected, but full reopening will be in 2024; and (4) Geopolitical uncertainty, with regard to which there has been some pause after elections – in the US, the mid-terms saw no major surprises and were quickly digested by the market, which reacted well to a divided government that should deter populist policies.
Central banks are working out how far they should go in terms of their aggressive tightening talk. The strong job market does not support a shift in stance from the Fed; while signs of moderation are emerging in wage growth, it remains above pre-crisis trends, and inflation is persistent and challenging. While the peak in US inflation is likely behind us, recent data confirm that core inflation remains sticky. Financial conditions are tight, but could become even tighter as the Fed’s risk of overshooting remains high. Globally, questions over long-term debt sustainability come at a time when markets are clearly addicted to central bank liquidity. As we saw in the UK, the miscalibration of fiscal and monetary policies can force a central bank to step in.
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