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Wednesday 06 April 2022
April 2022 | As a result of the Ukraine crisis, China’s bargaining power has de facto increased considerably and we continue to believe China will play a key role in ending the crisis. The war marks a turning point in international relations, and challenges doctrines that have been well established for decades, particularly the paradigm that economic integration is a bulwark against war. This crisis exacerbates the need to diversify supply chains and to relocate some production for strategic and/or resilience purposes.
01 | This Month’s Topic: Vladimir Putin is already facing deep economic, military and political challenges. While short-term impacts are uncertain, this war will mark a turning point in international relations and military doctrine in Europe, and lead to a new form of globalization.
02 | Credit Markets: Valuations are now a little more attractive. However, the environment remains challenging, particularly in Europe. We remain cautious and more constructive on US credit markets relative to euro markets.
03 | Central Banks: The Fed is determined to hike rates rapidly. In the short-term, the US economy will be supported by the many cushions present in the economy. The Fed will be in a more difficult situation in 2023.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of April 06, 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.
The greater the gap between what central bankers say and what people believe, the higher may be the cost of bringing inflation under control since significant monetary policy tightening will be needed to rein in expectations about how fast prices will rise. The current collective memory has instead been shaped by an environment where central banks were more concerned about undershooting their inflation targets and were free to act to support growth.
The age of the 'Great Coincidence' in the policy mix is over. Budget deficit reductions are near, and will be accompanied by diminished household savings and greater pressure on corporate profits in light of wage negotiations. The widespread belief that fiscal spending is effectively unlimited is going to be severely tested. On the monetary side, we're witnessing the end of ultra-cheap money. Central banks have had to hike rates and drain liquidity in this time of looming stagflation, but will maintain a benign-neglect tilt and allow inflation to run to preserve growth.
We are witnessing significant divergences in the economic outlook (we have revised down the EU and Chinese economic outlooks vs. that for the more resilient US economy) and in market performances. From an investment standpoint, while investors should maintain a neutral risk stance, there is room to play these divergences across the different asset classes. As the great asset repricing unfolds, investors should be ready to adjust their allocations to deal with inflation.
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