This year is off to a very promising start in the financial markets. However, the markets are recovering at a time when the growth prospects of the major world economies are constantly being revised downwards.
Behind these encouraging market trends lies a less positive economic reality
Behind these encouraging market trends lies a less positive economic reality. Little by little over the past few weeks, various economic statistics have confirmed that the slowdown is becoming more widespread. Although it has been largely spared thus far, the United States is beginning to lose its economic momentum. In China, manufacturing figures in particular are reflecting the global slowdown’s increasing impact on the country’s growth prospects. Lastly, European economic activity is moving towards stagnation. Despite less positive economic signals, it is still too early to talk about recession. In most of the world’s economies, domestic demand is underpinning local activity and partially offsetting less dynamic foreign demand.
This environment is obviously not very favourable for price growth, and there is a somewhat better understanding of why inflationary pressures remain contained. Given these circumstances, the main central bankers have adapted their positions, signalling that their very accommodative monetary policies will continue. In other words, interest rates should remain very low in the coming months.
The overall economic climate therefore remains fragile. On the political front, the progress made on various matters (Brexit and China/US trade war) also remains slow. With regard to the dispute between the United States and China in particular, it should be emphasised that the announcements have been rather confusing and contradictory. Consequently, it is difficult to exclude political risks, which will continue to ensure that a certain level of volatility remains in the markets. That means that it remains quite conceivable that the stock markets will strengthen in the coming weeks.
Even though we still have a positive view on stocks over the medium to long term, on the basis that the risk of an imminent recession remains unlikely, we are favouring caution in the short term. We have therefore slightly underweighted the equity portion of our portfolios.
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