The recent dynamics of the bonds indicates a change in the search for security in US assets towards a reevaluation of treasure bonds and USD as last safe shelters. Although we believe that it is too early to question trust in US assets, we also think that any challenge to the independence of the Federal Reserve and so much political uncertainty could undermine investors’ confidence. For example, the risks perceived around capital exits and some repositioning in the markets caused the recent divergence between US yields and the dollar. Looking ahead, the main topics to be monitored are:
- War and protectionism will affect the growth of the US, but a tariff -induced recession still does not be our base scenario. GDP growth is expected to be around 1%, below almost 3% of last year. Tariffs and pressures on consumption, labor markets and the negative effect on wealth are the main factors that will affect growth. Although US USAs will exert pressure on European exports and growth, there are some positive points for the region: fiscal spending in Germany, low oil prices and the moderate response of the EU to US tariffs.
- Fed faces the challenge of consumer inflation expectations, but will probably be inclined to support growth. If consumer inflation expectations are disagree and if they begin to affect salary negotiations, these expectations will reinforce real inflation. The moment when the Federal Reserve acts will be important. For now, we believe it will reduce the types three times this year.
- Less dilemma for the ECB, which recognizes weaker growth perspectives for the region. We have reduced our terminal type expectations from 1.75% to 1.50%, which implies three more cuts this year. In the United Kingdom, the cooling of labor markets, the strengthening of the pound and the elimination of import tariffs should press inflation down, which would allow the Bank of England to reduce interest rates three times this year.
- China will have to find a way to rely more on domestic consumption to grow. American tariffs on Chinese exports have exceeded our expectations and, of course, the country’s growth will be affected. Currently, Chinese political leaders are retaliation, but we believe they will also have to focus on domestic demand and consumers, using both monetary and fiscal tools.
From a medium -term perspective, we see weaker economic perspectives, which reinforces the arguments in favor of a prudent allocation. However, we have not yet reached that point and, for now, we are still slightly proriesgo.
- For fixed income, We are positive in duration mainly by the EU and the United Kingdom, but we are prudent in Japan. In the US, we are neutral: although inflation is lowering, the inflation expectations of consumers are high. The valuations of corporate credits are discounting a deterioration of growth, although the foundations remain solid. Therefore, we are optimistic about the EU investment grade market, given its assessment, and we see a good value in the financial sector. However, we are prudent with respect to the American High Yield market.
- As for the variable income, the sales of the US market are reaffirming the rotation towards regions such as Europe, the United Kingdom and Japan. With compressed assessment multiples, the main risk lies in benefits. Although we maintain the caution on the US. In general, we see selective opportunities in quality, quality and weighted indices equally, with reasonable assessments and those that are relatively isolated from Trump’s policies. In Europe, we opt for defensive values of basic consumption and health, with a strong non -disturbed pricing power and business models. In the cyclic sector, we also like European quality banks and small and medium capitalization companies for their national exhibition.
- Emerging market assets are finding support in a weaker dollar, Fed type cuts expectations, Attractive internal yields and resistant growth so far. But the uncertainty about Trump’s policies could ballast the kind of assets. In particular, we are constructive in strong currency and corporate debt, since absolute yields are attractive. In local currency, we find selected opportunities in Latin America and border markets. As for the variable income of emerging markets, China is vulnerable to tariffs and restrictions, but Latin America and the Mena region seem relatively isolated from US tariffs, which leads us to maintain a positive posture over Latin America and India. We are also optimistic about emerging Europe.
- In multi -active, we maintain a slightly favorable risk posture despite the deterioration of perspectives, since macroeconomic, credit and liquidity conditions remain reasonably favorable. Tactically, we are adjusting our position, becoming less positive with respect to the variable income of the developed and more positive markets with respect to the fixed income of emerging markets. In addition, we are becoming positive with respect to the euro against the dollar, since American exceptionalism fades and the decrease in the interest rates of the Federal Reserve can reduce flows to US assets and increase the repatriation of capital to Europe and Asia. We remain positive with gold, given its attractiveness as coverage in the face of geopolitical tensions and inflationary risks.