Insights

A Late Cycle With a Greater Focus on Inflation

May 2022 | 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.

May FOMC Meeting: 50bp Interest Rate Hike is Bullish for Markets

Looming Divergences and the Great Asset Repricing

We are witnessing significant divergences in the economic outlooks 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. While short-term inflation may start to decelerate, the long-term view is increasingly showing that sticky inflation remains high in light of geopolitical risks and the supply chain stress amid Shanghai’s lockdown. The US economy remains solid while the Eurozone is the most exposed to stagflationary risk. We will most likely see at least a short-lived recession in the second half of 2022, triggered by Germany and Italy, while France and Spain might show some resilience.

French Election: Markets Complacent for Macron Victory, but Game is Not Yet Won

President Macron is leading in the polls, but an upset victory by Le Pen would significantly change policy in France. Markets are currently complacent in anticipation of a Macron victory, but a tightening race will command some degree of market volatility in the coming weeks, adding to a complex landscape in Europe.  The prospect of a European recession is another key issue, and our tactical view is that  US equities are in better shape than  European ones. This has nothing to do with the French election, but with the broader macroeconomic and geopolitical situation, as Europe has been hardest hit by the conflict in Ukraine.

Ukraine: where do we stand?

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.

US Economy and Markets Look Resilient Regarding the Russia-Ukraine Crisis

The  US  economy  has  proven  to  be  exceptionally  resilient  in  the  current  context.  We’ve witnessed  strong  GDP   growth  in  the  fourth   quarter,  mainly  stemming  from  inventory accumulation, with consumption running a little weaker. Overall, the inflation environment is more difficult today than it has been for the past 15-20 years. Supply constraint issues will take far longer to resolve given the conflict in Europe and due to the shortages in commodities and energy in particular. We can expect inflation to return to more reasonable levels in the next 12-18 months.

Winds of war blow on economic outlook

Europe is the area most exposed to the war – in particular, through the effects of higher energy prices, supply chain disruptions, and geographic proximity— but the commodity squeeze goes far beyond energy to include agricultural commodities and metals. 

March 15-16 FOMC review: we have full throttle lift off

The Fed voted 8-1 to raise the target range for the fed funds rate by 25bps, to 0.25-0.50%, and signaled more rate hikes. 

Russia-Ukraine: a lot of bad news already priced in, but the outlook is deterioratingRussia-Ukraine: a lot of bad news already priced in, but the o...

After several rounds of negotiations, the conversation on the war front has shifted towards Russian demands regarding the breakaway regions of Donbass and Crimea.