Insights

10/05/2022 Global Investment Views, Equity, Fixed income

Bond Yields Now More Appealing

 Inflation remains in the spotlight: the latest US reading was concerning, causing yields to rise while equity markets tumbled. Looking ahead, we confirm the outlook of slowing US inflation, but we think central banks, including the Fed and the ECB, will remain hawkish. Meanwhile, the economic outlook could deteriorate, as the US faces an extended period of sub-par growth and the outlook for the Eurozone appears gloomier, compounded by the ongoing energy crisis.

09/28/2022 Investment Talks

UK Market Turmoil Points Towards Further Volatility in Global Currencies

Investors’ focus is shifting from the poor growth/inflation mix in the UK to the extremely negative external balance picture. On September 23, the government announced an additional 0.5% of GDP in unfunded tax cuts. The reaction of UK assets recalled actions we used to see only in emerging markets. The market is giving a strong signal that it is no longer willing to provide capital to fund the UK’s external deficit position. The correlation between interest rates and the currency signals that the market is questioning the credibility of UK policymakers’ actions.

09/12/2022 Cross Asset

Strong Earnings Helped Support the Summer Rally

We see sustainability of margins/earnings as the key driver of allocation across sectors. This leads us to an overall preference for defensives. In some cases, cyclical sectors can also offer resilient margins and profitability. Across non-defensive sectors, we believe Energy might have further upside, especially if the economic downturn proves mild. High-quality areas such as Luxury Goods are a key overweight in our view as a sector where profitability and margins are very resilient.

09/08/2022 Global Investment Views, Equity, Fixed income

The Autumn Hard vs. Soft Landing Puzzle

Now that the Fed has reasserted its hawkish stance, we are starting to see further downward movements that may be set to continue. At this point, we see no sign that the rally will continue, while there are rising risks moving into autumn amid a gloomier economic backdrop.

08/16/2022 Investment Talks

Mind the Lag: Recession Fears Flare Too Fast

Investors expect central banks will tame inflation whatever the cost, even triggering recession if necessary. This may indeed be policymakers' approach in the short term as they seek to re-establish their credibility, but investors risk overestimating central bankers' ultimate willingness to hurt growth..  We predict that inflation will therefore be higher than many expect over the next couple of years, with important implications for asset prices. 

07/28/2022 Investment Talks

July FOMC Meeting: Maintaining a Hawkish Course

In a widely expected move, the US Federal Reserve hiked the fed funds rate by 75bp to 2.25-2.50%, its second consecutive 75bp rate hike. The fed funds rate is within the 2 to 3% range of estimates of the long-term “neutral” rate.   However, as Chair Powell reminded us during his press conference, policy needs to go beyond neutral into restrictive territory this year in order to reduce inflation.

07/28/2022 Global Investment Views, Equity, Fixed income

Cautious on Markets: High Inflation, Slowing Growth

The double bear markets (in equities and long-term bonds) have nearly adjusted to the end of easy money and the ongoing rising inflation. We are shifting focus from fears of inflation to the deceleration of growth. Earnings expectations have room to go down, and the dollar rally could continue.

07/12/2022 Cross Asset

The Emerging Markets Hurdles

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.

07/01/2022 Investment Talks

Life Above Zero: Investors' Journey at a Time of Rising Rates

We expect economic momentum to slow in the second half of 2022 as inflation acts as a regressive tax on consumers with huge divergences across regions, countries and sectors. However, we do not foresee a global recession. Inflation might be close to peaking in most areas, but we expect the inflationary environment to persist in 2022 and 2023.