Slow food for thought
Insights and research on global events shaping the markets
Volatility made a comeback in the last few weeks, triggered by concerns that the US Federal Reserve could taper its monthly asset purchases at a faster rate and fears that the emergence of Omicron could weigh on global economic growth and contribute to supply chain disruptions. As we are heading towards a new year, we are concerned by the high level of valuations of some market segments (e.g. US equities) at the time of normalization of monetary policies. Moreover, some technical signals such as market breadth are pointing towards some negative divergence. That said, the weight of the evidence leads us to keep a positive stance on risk assets and equity in particular.
The discovery of the new Omicron variant has brought back fears and concerns around the global economic outlook, in an already sensitive context of surging Covid cases and rising restrictions across Europe. In order to gauge the economic impact of this new variant, two key questions remain unanswered, at least for now: Will existing vaccines provide a decent level of protection against the Omicron variant? Compared to existing variants, does this new one cause similar, more or fewer severe conditions, hospitalization and deaths?
By most measures, 2021 will be remembered as an extraordinary year for global risk assets and the world economy. At the time of writing, stocks, home prices and cryptocurrencies are all at record levels while the price of energy, food and industrial metals keep rising. Meanwhile, US inflation is at a 30-year high while job openings and wages are surging.
We keep our positive stance on risk assets and equity in particular. In the near-term, we continue to believe that strong earnings growth will more than offset the coming gradual normalization in fiscal and monetary policy. - While monetary policies are becoming more uncertain and despite the fact that some of our technical indicators have deteriorated recently, equities are still the most attractive asset class given solid growth prospects, negative real bond yields, positive earnings momentum and favorable seasonality. - From a tactical standpoint, we are upgrading Japan equities from positive to preference and UK equities from cautious to positive. Both markets are attractively valued, are benefiting from positive macro momentum and are pro-cyclical in nature. - In light of ongoing inflationary pressures and monetary policy normalization, we see upward risks on long term rates and stay cautious on government bonds and spreads. - We remain cautious on commodities and stick to our (short-term) bullish view on the dollar. Our tactical asset allocation is summarized in the matrix at the end of the article.
“Slowbalisation”, which began even before the start of Covid-19, is a counter-trend to globalization. The pandemic could further accentuate this phenomenon.
We are reducing part of our overweight equity stance in light of a more uncertain liquidity environment and the deterioration of some of our technical indicators.
18 months into the Covid pandemic, the world economy has experienced its shortest yet deepest recession ever, followed by one of the strongest recoveries on record, thanks to historic levels of government and central bank support. The magnitude of the shock, and the uncertainties around its impact on the economic outlook, meant financial markets oscillated between despair and hope, with occasional spikes in both directions. Europe’s summer marks another step in this atypical economic cycle with a transition from recovery to an environment of steadier growth.
The Mediterranean’s sperm whales and their ecosystem may seem an unlikely investment target. But a new finance model puts the fruits of investments in sustainable assets to work for both clients and protecting the marine environment of some of the world’s busiest and most polluted waters.
Covid recoveries push global growth to four-decade high.
The ongoing global recovery is very strong. World economic growth this year will be the highest in at least four decades as economies recover from 2020’s huge shock. Evidence of this spectacular recovery already widespread, especially in the United States, which is once again leading the global economy thanks to fiscal stimulus and a swift and successful vaccine campaign. The reopening of business activity has unleashed record pent-up demand. Europe is also about to experience a similar boost as it gradually lifts pandemic- related restrictions.
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