Summary
Our monthly Global Investment Views highlights the latest views, convictions and outlook of our CIOs.
In this summer edition, discover insights on Central Banks' policies, US yields, and global financial conditions impacting investment strategy.
Rotation and broadening in equities has started
US mega caps significantly outperformed the rest of the US markets in the first half of the year, driven by better-than-expected economic activity, AI exuberance and superior earnings. Looking ahead, we see a potential for a rally-broadening, which will not be linear and is likely to have multiple legs.
Three hot questions
- How would politics in the UK, France shape their economies?
- What’s the reason behind Fed, ECB policy divergences?
- What are you views on China and the recent Third Plenum?
Stay risk-on but well-diversified
Softening economic activity in the US is reflected in the rebalancing labour markets and weakening consumption. This is happening at a time when the US fiscal deficit is increasingly in focus. In Europe, we expect growth returning towards potential during the year, although there could be some vulnerabilities. This mixed environment calls for a mildly positive stance on risk assets, but investors should diversify their risks.
Fed gaining confidence in easing policy
The downshifting of the US economy along with declining price pressures are indicative of the upcoming Fed pivot. Similarly, inflation is falling in Europe but some components such as core and services inflation remain a bit sticky. Hence, while central banks seem to be on the path to cut policy rates, any volatility on inflation or economic resilience could mean they would remain patient.
Earnings resilience essential for rotations to sustain
Equity markets are being driven mainly by rate cut expectations, politics, and economic momentum. The Federal Reserve is expected to cut rates due to slowing inflation, recent mixed economic data and weakening labour markets, which supports our view of a decelerating economy. Despite this, US large caps have remained strong, driven by rate cut expectations and following the narrative that bad news is good for the markets.
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