Monthly Coffee Break

European equity markets have been broadly flat over the past few weeks.

Financial markets took a breather over August.

Against a backdrop of volatile trading, August saw the return of a correlation between risk assets and rates...

One and a half years after the US Federal Reserve bank began its tightening course, the US economy continues...

The markets appear to be having second thoughts on the “terminal rate” of several central banks in developed markets, as their restrictive job is likely not finished yet.

Looking back over the first half of the year, we can say that the bulls gained the upper hand over the bears.

European equity markets had to give away some ground over the past few weeks.

June saw some weak performances in European risky assets and spread products, with European equities, high yield and IG corporates posting negative returns.

In a market animated by contradictory economic data points, NVIDIA’s excellent Q1 earnings were enough to light the fire under an already hot technology sector.

With equities performing the strongest over the month, the picture was rather mixed for fixed income asset classes, with no clear outperformance from any risky asset classes.

European equity markets were unable to continue their uptrend since the beginning of the year over the past four weeks.

Financial markets have been resilient in H1 2023, reflecting a better growth/inflation mix than expected by consensus at the start of the year.

European equity markets continued their uptrend over the past four weeks on the back of positive economic surprises and a sharp fall in headline inflation as base effects in energy started to drag. The positive market trend was clearly driven by large caps and defensive growth sectors.

April saw positive performances for risky markets, with equities and convertible bonds outperforming, followed by high yield.

The market narrative remains very cautious and divided as to the path to follow over the next few quarters.

In our economic and market scenarios, the next stage points to lower growth and gradually lower inflation in the US by the end of 2024. Consequently, lower interest rates should follow, and we keep a long duration bias in fixed income.

March was a challenging and volatile month, with investment sentiment going through a whole variety of shades in a single month.

In March, markets were driven by the strong performance of most asset classes, confirming a general trend year-to-date in which investors in most major asset classes have been rewarded with positive returns.

European equity markets have rebounded strongly since mid-March after the sell-off due to the collapse of Silicon Valley Bank in the United States and the financial turmoil around Crédit Suisse.

Our main scenario incorporates slow growth, both in the US and eurozone, and continues to remain the most likely.

The collapse of the Silicon Valley Bank, the 16th largest bank in the United States, triggered a shockwave through financial markets. Despite their resilience, European equity markets nevertheless also had to give away some ground in this environment. During this correction, and especially since the beginning of March, growth stocks outperformed value stocks, and large caps outperformed small caps.

During February, economic and inflation data came in slightly above expectations, which helped cool the market down. Central banks reiterated the message that the market should expect monetary policy to maintain its course until we see significant signs that inflation is abating.

Uncertainties on US and European financials have replaced the better economic growth outlook in investor’s minds. Suddenly, the improvement in activity is now mitigated by financial vulnerabilities and inflation stickiness.

In the weeks to mid-March, the dominating theme was perhaps the return of decorrelation between risky assets and rates.

The beginning of the year provided some relief to global investors and allowed them to claw back some of the losses they suffered in the previous year.