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Every month, LBP AM analyzes market news in a video.
Today, Sebastian Paris Horvitz, Head of Research at LBP AM, discusses the impact of US economic policies and the investment outlook in a context of moderate slowdown. Discover his analysis of the major asset classes in this new “Market Insights” video.
Summer was once again largely shaped by measures taken by the US administration.
From an economic standpoint, we continue to believe that the protectionist policies implemented by President Trump are stagflationary — that is, detrimental to growth and likely to fuel inflationary pressures in the United States.
However, their impact may take time to materialise. Indeed, the historic increases in tariffs have so far had only a limited effect on price developments. Nevertheless, the inflation trend is still edging upwards.
Our economic outlook for the coming months remains one of slowing activity in the United States, while Europe is expected to continue its very moderate expansion.
That said, the US slowdown may prove more gradual than initially anticipated. At the same time, with early signs of weakening in the labour market, the Federal Reserve is likely to cut rates sooner than expected — possibly as early as this month.
In the short term, we believe markets could continue to benefit from an environment that deteriorates only slowly, supported by a more accommodative Fed. In particular, US risk assets should benefit from this backdrop.
Nonetheless, we maintain the view that taking on too much risk remains challenging. Our investment strategy therefore retains a degree of caution, with a neutral stance in our asset allocation. As a result, our analysis suggests that relative performance choices within each asset class are more appropriate.
In government bonds, we continue to benefit from carry and remain highly agile in order to take advantage of sometimes rapid movements in interest rates. We still hold a strong interest in Southern European sovereigns — notably Italy and Spain — which are supported by favourable economic conditions and sound public finance trajectories.
In European corporate credit, we are facing demanding valuations, particularly in the high-yield segment. Moreover, certain sectors within high yield are significantly exposed to US tariff risks, which increases their vulnerability. As such, we believe it is prudent to selectively reduce our exposure to high yield and favour investment grade within the asset class.
In equities, we are rebalancing our positions within the asset class to reflect a more favourable short-term outlook for the US. We are therefore increasing our exposure to US equities while maintaining our positioning in Europe.
In Europe, we continue to believe that upcoming stimulus measures and a more accommodative ECB will provide support. Conversely, having previously held significant exposure, we are now reducing our allocation to emerging markets — particularly China — following a strong performance that we consider excessive.
Les opinions exprimées (i) sont considérées comme fiables par LBP AM et fondées ou justifiées en fonction du contexte économique, financier, boursier et réglementaire et (ii) sont fournies uniquement à titre d’information.