MARKET VIEW 15
MACRO OPINION
Laurent Gorgemans , CFA, Global Head of Investment Products at Nordea Asset Management:
Help when the economy lags
A slowing economy naturally has downside effects on financial markets. However, it also offers investment opportunities: from more attractively valued fixed income sub segments to cheaper companies with robust cash flows.
As the global economy slows, central banks are tightening the reigns on monetary policy again. As a result, inflation should start slowly ebbing away. We are starting to see the first signs of this in the US. Base effects, the impact of Fed and ECB policies and the expectation of lower oil prices should reinforce this in the coming months. The European economy is likely to slow down signif- icantly: from 3.1% this year to -0.1% next year, accord- ing to consensus expectations. A shallow recession suggests a still decently robust labour market. In addition, energy prices should eventually stabilise at lower levels bringing some relief, though supply re- mains tight. Over a couple of quarters, we should see the economy recover, supported by lower inflation and an overall solid consumer balance sheet. The US economy is decelerating: beyond the in- flation shock for low-income consumers, the losses in the financial and real estate markets are further worrying middle-income households. This is leading the market to expect a Fed pivot, i.e. a reversal in the Fed’s monetary policy with interest rate cuts at a moderate pace. Such speculation is likely to intensify in the coming weeks, which supports both US fixed income and equities. The same can ultimately be expected for Europe. What are the solutions for investors? 1. Not-to-expensive equities with robust cash flows are a good choice, as are covered bonds with increasingly longer maturities. They provide a tran- sition to an eventually broader investment universe. 2. Multi-asset solutions that are less correlated to major asset classes are also a sensible option. 3. In fixed income, it could take a few more weeks for risk appetite to rise again. Investors will first turn to long-dated sovereign bonds as a Fed pivot is anticipated, then to credit, as the bottom of the economic slowdown is priced in with its resulting default rate.
The horses are saddled: in view of the weak economy, investors should not hang their heads. Central banks could soon change direction, first in the US.
US house prices fall, rents likely to follow suit
22.5 20.0 17.5 15.0 12.5 10.0 7.5 in%
5.0 2.5 0.0
2000
2021
2022
S&P CoreLogic Case-Shiller US National Home Price NSA Index, YOY US Consumer Price Index for Urban Consumers: Owners’ Equivalent Rent of Residences, NSA, YOY Fed target inflation rate
Source: Nordea Investment Funds S.A. and Macrobond Date: 30.09.2022
ISSUE 01.2019 ISSUE 02.2022
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