MARKET VIEW 15
MACRO OPINION
Sébastien Galy , Senior Macro Strategist at Nordea Asset Management:
Deflating a hot air balloon
The global economy, fuelled by cheap liquidity, has run too hot, forcing central banks to tighten monetary policy. This has complex implications for investments. However, the secular strength of ESG remains.
Central banks in the US and the eurozone have started to rapidly raise interest rates and reduce their balance sheets. However, such a withdrawal of liquidity inevitably has consequences. In the US, the Fed is confronted with a widening wage inflation spiral in a labour economy that is running very hot. It needs to tighten monetary pol- icy and, above all, regain control over the narrative as this will influence expectations of workers and employers. The first step is a series of 50 basis point rate hikes and a rapid reduction in the Fed’s balance sheet. As a consequence, the US equity market is likely to oscillate between the euphoria of ample liquidity and growth and the prospect of a slowdown and, eventually, much tighter liquidity. The ECB, in turn, is far behind the curve, but still has time to change its course. We expect that over time it will become more hawkish to the tune of another 125 basis points over the next two years so that real interest rates turn less negative. This should not come as a major shock to European eq- uities. They are cheap and the eventual slowdown in the European economy should be subdued. The war in Ukraine could continue until next year, but it is a war of logistics and production that is particu- larly challenging for Russia. Eventually, the market will price in wilder moves by Russia, followed by the end of the war. What does this mean for investors? In such an environment, listed infrastructure continues to be a decent hedge against inflation, while short-duration covered bonds and their alpha capability are of interest. In addition, holding flex- ible solutions that can quickly adjust to changing conditions can also be advantageous. Due to the volatility in US markets, we are cautious on US equities, but see ample opportunity in US fixed income. Finally, and most importantly, the secular force of ESG remains.
Flying high: The loose monetary policy of central banks has helped the global economy to soar. Now, it’s time to change course. But that is not without risks.
The world economy is growing fast Since the end of 2020, global purchasing managers’ indexes (PMI) have been above 50 points, indicating continued growth.
62 60 58 56 54 52 50 48
Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22
JP Morgan Global PMI Manufacturing
JP Morgan Global PMI Services
Source: Nordea Investment Funds S.A. and Macrobond Date: 30.04.2022
ISSUE 01.2019 ISSUE 01.2022
Made with FlippingBook - Online magazine maker