Introduction
Recent CPI prints across the developed world caused wide-spread market enthusiasm, with US and UK numbers even coming in below expectations. Nevertheless, whilst the worst of the pressure appears to be behind us, ripples in the economy could persist for some time. As central banks near the end of their tightening cycle, interest rates are likely to be nearing their peak. That said, banks are likely to maintain current levels until they are assured that underlying inflation dynamics are fading.
The economy has become somewhat less dynamic, particularly in Europe. Latest figures indicate a slightly slacker trend in the economy, particularly in the euro area and United Kingdom as well as China, whose recovery remains unimpressive. These figures broadly match our scenario of continuing but modest growth. Developed economies can rely on sturdy job markets and solid balance sheets for businesses and households. Both characteristics should continue to mitigate the hit from inflation and tighter monetary policy.
In this environment we continue to balance equities and bonds, while boosting duration. We uphold our highly diverse global positioning to afford us some protection against any fresh turbulence, whilst enabling us to capture the rally in equities since the start of the year. In fixed income, our preference has shifted to longer maturities in euro area and UK sovereign bonds. The attractive real returns being paid on both US sovereign and top-rated corporate debt provides the rationale to retain our overweight position particularly with regards to government debt. Within our equity exposure, we maintain our preference for European equities as they are still riding a stronger earnings trend and trading on cheaper multiples.
In accordance with the regulations in force, we inform the reader that this document is qualified as a promotional document. Unless specified, all figures and statistics in this report are from Bloomberg and Macrobond on 13/07/2023, publication completion date.