Resilience of global growth
The global economic environment remains buoyant despite persistent geopolitical tensions in the Middle East, tight financial conditions and persistently high energy prices. Activity indicators suggest that global growth continues to withstand these various shocks, supported by the strength of consumption and the investment cycle.
Purchasing managers' surveys continue to point to an improving economic environment. Global PMIs are rising and order books are gradually recovering. This dynamic is visible in most major economic regions, including Europe where energy concerns remain high.
In the United States, activity remains supported by the resilience of the U.S. consumer and the investment cycle in artificial intelligence. Spending on data centers, semiconductors and digital infrastructure continues to fuel demand and contributes to the dynamism of the global cycle.
In this context, our central scenario remains that of a moderate reflation. Global growth is expected to remain solid while inflation remains above central bank targets without jeopardizing the economic cycle. Stagflation risks remain
contained though this still cannot be ruled out in the event of a further significant deterioration of the energy environment.
“Global growth is expected to remain solid while inflation remains above central bank targets without affecting the economic cycle”
- Marie Thibout, Economist & Senior Strategist
The latest central bank meetings have confirmed this reading. Both the Federal Reserve and the European Central Bank have stressed that inflationary risks remain tilted to the upside. Strong demand, the investment cycle in artificial intelligence and persistent tensions in the energy markets continue to fuel inflationary concerns. In this context, the resilience of the global economy in the face of high interest rates is currently not in question. Attention is mainly focused on the level of monetary restraint still needed to bring inflation back to target in the long term.
More attractive entry points into bond markets
The more restrictive tone adopted by central banks and the rise in rate expectations have led to a significant correction in bond markets in recent weeks. Sovereign yields have risen significantly, bringing real yields back to very attractive levels. The US 10-year sovereign yield ended September more than 53 basis points higher, at 5.3%. If we remain cautious on longdated government bonds given the persistent risks surrounding inflation and the deterioration of public finances, we have reduced our bond underweight by more than half through the purchase of short- and medium-duration sovereign bonds at attractive entry levels. We have more than halved our bond underweight through the purchase of short- and mediummaturity sovereign bonds, on attractive entry points.
Equity markets continue to be supported by resilient global growth and a dynamic earnings outlook. In this context, we maintain our preference for US equities, whose earnings expectations remain more favourable than in other major regions. While the recovery in energy prices could weigh on some margins in the coming quarters, we have reduced some of our sector cyclical bias. We maintain our positive view on the technology and energy sectors.
The environment is more constructive for the US dollar. The interest rate differential is now more favourable, while the US economy continues to show higher momentum than other major regions. Finally, we are maintaining our exposure to gold. Central bank purchases, questions about the sustainability of public finances and geopolitical uncertainties will continue to support the price of the yellow metal.
