PARIS (Reuters) – The slowdown in developed economies is making risky assets less attractive and restoring interest in the safest bond securities, according to Pictet AM.
“The risk premium on risky assets is bound to rise, especially since the Fed’s quantitative tightening has been slowed by the support granted to American banks and the absence of new issues from the American Treasury”, remarked Frédéric Rollin , strategy adviser at Pictet AM, during a press conference on Monday.
“It is the strong injections of liquidity in recent months that have allowed the markets to hold up,” he said.
Frédéric Rollin also highlights the return of a “central bank put” to explain the disconnection of the performance of developed equities from the uncertain economic context – namely the anticipation of a slowdown in growth which could trigger a new cycle. monetary easing.
Frédéric Rollin notes that in the United States, the credit granted by commercial banks is in sharp slowdown, with growth of 1.3% over one year in May against a peak of more than 10% reached in the second half of the year. last.
In addition, the number of hours worked and the number of quits are down from their record highs reached in 2022, a sign that tensions in the labor market, which have contributed to the dynamics of US inflation, are weakening. .
“We do not expect a further rate hike from the Fed, but a pause, which would be followed, during 2024, by a rate cut,” he said.
Conversely, if the euro zone is faced with a similar tightening of lending conditions, which will eventually weigh on activity, the tension on the labor markets remains at a record level, with an unemployment rate historically low and a vacancy rate close to its record, at 3.3%.
“The ECB should indeed raise its rates two or even three times, the risks of an unanchoring of inflation expectations remaining present: inflation swaps 5 years ahead 5 years have been steadily increasing since mid-2019 and are well beyond 2%, which sends the wrong signal”, noted Frédéric Rollin.
In this context, Pictet AM is therefore moving away from risky assets and speculative credit, whose rate spreads do not yet clearly reflect the risk of rising defaults, in favor of sovereign securities and well-rated credit (investment grade). .
According to Pictet AM, emerging assets could also benefit from already declining inflation – an aggregate inflation index for 30 emerging countries fell to 3.8% in May after peaking at nearly 8% -, while that the weakening of the dollar at the rate of the American economy would benefit local currencies.
(Report Corentin Chapron, edited by Blandine Hénault)
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