Points clés - Marchés
Our multi-asset views for January 2019
Snapshot: In our latest monthly update we highlight the need to strike a balance between improving valuations but worsening momentum indicators.
We expect momentum to remain weak in coming weeks with risks of further downgrade to earnings outlook, although possible value to be harvested in medium/longer term.
Having added to government bonds in Q4 we are inclined to take some profits. On a 6-12 month view, we expect to be more positive given our expectation for slower growth in 2019/2020. Our score is neutral but we may buy on dips.
We see limited upside given cyclical and macro headwinds, unless US-China trade tensions dramatically ease.
The recent rise in yields has created some select value opportunities. However, we continue to retain our cautious outlook on a strategic basis.
While investors continue to evaluate the risk of an early recession, we expect the market to remain volatile. Despite improving valuations, outlook could be revised down further.
We remain cautious based on concerns that earnings for EU companies are deteriorating faster than in other regions, and economic activity indicators remain weak.
We expect the market to remain volatile as sterling (GBP) swings associated with Brexit impact UK equities.
With the deteriorating outlook for global growth and a stronger yen (JPY), exports may continue to face challenges, while there is not enough evidence of a pick-up in domestic activities.
Given the relatively connected nature of the regional economy to global trade, the risk of a disappointing data print may offer intra-regional opportunities.
Valuations now look attractive, and a pause in tightening from the Fed would restrict USD strength and help EM assets.
Whilst valuations look high, this appears justified by mounting cyclical pressures. Treasuries may be over-extended short term, but we are buyers on dips.
Brexit uncertainty continues to complicate the outlook for gilts. We are neutral, preferring to take risk elsewhere.
Bunds look rich but European data continues to disappoint, calling into question the ability of the European Central Bank to tighten policy in 2019.
Whilst Japanese data has shown a rebound from 2018’s weather/tsunami effects, we nonetheless expect the Bank of Japan to leave policy unchanged.
US inflation linked
We continue with our positive view that US breakevens offer value.
Emerging markets local
We remain neutral as the cyclical headwind trumps improved valuations.
Investment grade (IG) corporate bonds
The increasing cost of leverage will likely weigh on corporate earnings, while the continuing deterioration in the quality of the universe is also a source of vulnerability.
Notwithstanding political noise, recent price moves have created some value opportunities. That said, while our metrics suggest a move to attractive levels, we remain cautious.
Emerging markets USD
We believe that the recent widening has created some pockets of opportunity, principally amongst higher quality credits.
High yield bonds
From a strategic perspective, spreads are likely to drift wider, reflecting late cycle dynamics and supply overhangs from both investment grade and loan markets.
Europe is expected to underperform US on a duration/rating adjusted basis.
Our view remains unchanged given markedly improved fundamentals and a stable (as opposed to a rising) oil price, which we expect to support reasonable levels of returns.
We believe that divergence in economic growth has probably peaked, and going forward the likelihood of growth convergence would be favourable to gold.
Leading indicators of China growth are still in a downward trend and shadow bank financing is still shrinking, weighing on the demand outlook.
This sector has relatively low sensitivity to global growth and equity volatility, and is supported by supply/demand dynamics and weather risks in 2019 H1.
Our base-case is still for global growth and sentiment stabilisation whilst the US economy softens further.
Whilst a no-deal Brexit is still a possibility, this appears to have been priced into GBP.
US growth weakness and (crucially) the Fed readjusting its rate hiking expectations allows for sentiment stabilisation in EUR.
Japanese yen ¥
The yen remains the most undervalued G10 currency and an effective hedge against further growth disappointment.
Swiss franc ₣
Recent Swiss franc strength is at odds with weak growth data, which should force the Swiss National Bank to keep monetary policy dovish.