Making sense of this crazy world
Despite all the noise and geopolitical conflict, the International Monetary Fund (IMF) announced at a Conference in Bangkok its expectations of improved global growth for the G7 countries. Pleasingly, the UK has now improved its ranking and is anticipated to have the best growth behind the US.
The reasoning is that, despite the oil price shock, the markets have responded with “a flexible supply response”, allowing oil to still flow from the Middle East whilst also finding alternative supplies. Corporate earnings are also expected to remain strong.
Schroders echo the IMF’s sentiment, believing this growth resilience will continue thanks to the strong private sector balance sheets and abundant global financial liquidity. This appears to be consistent with the thoughts of many other fund houses, with the expectation that yields will soon reach their peak, making it a good entry point for bonds.
It’s been a volatile week with chip stocks selling off on the back of sticky US inflation data and higher yields. Yesterday, tech stocks plummeted, carrying on from Wednesday’s negative trade, but an about-turn in US yields saw a swing back into positive territory.
In Europe, the outlook for growth around the French economy has been downgraded, but growth across Europe is expected to ‘pick up’ according to the IMF.
President Zelensky is coming under pressure from the US, with Trump and Musk calling for Zelensky to step down. Zelensky, at a European summit today, is hoping to garner continued support from European leaders. Ukraine has stated it will not kowtow to US demands to stop attacking Russian oil refineries. Trump has called Ukraine a disgrace as a result.
Undoubtedly, a game of risk is unwinding between Russia, the US, Ukraine and Iran. Could Putin be the answer to peace?
To finish off, I liked what Wellington Management had to say about the markets and thought I’d share a bullet-point insight which reflects our views at Blue Sky.
This week’s content:
- Do higher yields make bonds look more enticing?
- US Treasuries are also attracting investors
- A volatile week in the US
- Financial strains in Europe
- Good news for European car makers
- ECB is expected to hike again
- A game of risk
- What does Wellington say?
Do higher yields make bonds look more enticing?
As bond prices fall, promised bond yields rise automatically. One would think that this creates an opportunity. The views are mixed, but increasingly bonds look attractive on a historical basis.
Goldman Sachs’ asset allocation team are more of a ‘maybe’, as highlighted in an update published by the FT this week. Most investment banks typically recommend that investors should be overweight equities over the medium-term, simply because they tend to offer greater returns than most other asset classes. However, over the shorter term, it’s not as easy to be so confident, as a lot can happen, as we all well know.
Goldman, on their 10-year horizon, however, has upgraded their view on 10-year government bonds from neutral to overweight. That’s also their outlook for equities. Good news on the face of it for a balanced portfolio.
They believe that yields will go into reverse at some point, although they are not quite calling the highs for bond yields. It’s certainly grabbing the interest of us at Blue Sky.
Continues…
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