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Tuesday 21 March 2023
Investment Talks
March 2023 | In the US, the credit crunch, which is already starting to materialize, will impact growth and will determine how pronounced the recession will be. Amid a weaker economic outlook, the market is reassessing central banks' actions. European banks' earnings growth will still be positive, just less so than previously thought. Concerns about credit crunches in Europe appear excessive amid the strong liquidity profile and capital position of European banks. While we already started the year with a cautious stance in risky assets, we have become increasingly prudent in credit high yield. We have also become more constructive on US duration, as it has started to work again as a diversifier of risk in periods of turmoil.
01 | The economic landing could be harder than initially thought. We already see a tangible deterioration of the US economy, which should fall into a recession in Q2.
02 | Going forward, we think that the European banking system is strong and that current repricing will generate attractive opportunities in credit for the most stable, quality retail banks.
03 | Emerging market assets, which have been the best performers in the recent past, have not been immune to the market volatility, with some widening in hard currency debt spreads.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of March 21, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.
The reinsurance industry has existed for over 150 years, and it remains an asset class structurally uncorrelated to traditional investments. To derive the value of cat bonds, Amundi believes the asset class should be part of a strategic, long-term asset allocation. The favorable risk and return characteristics have been demonstrated in the current market environment as well as over the longer term, and there are many favorable market trends that continue to make us constructive on this asset class over the foreseeable future.
Global stocks fell sharply at the start of the week, with Japan’s benchmark Topix index on Aug. 5 suffering its biggest one-day drop in more than three decades. European shares and U.S. stock futures also declined. Meanwhile Emerging Markets stock indices, mostly in Asia (Taiwan and South Korea), fell into the red and currencies that had benefited from high carry trades funded by the yen, such as those in Latin America, lost ground.
Market reaction to Biden's announcement has been muted at the time of writing, with a fall in the US dollar in early trading on Monday (July 22nd), a marginal movement in 10-year US Treasuries, and an upward trend in equity futures. In terms of the implications on markets, the election outcome is still highly uncertain. It is too early to define a potential "Harris trade," but even to have a specific trading strategy for a potential Trump 2.0 administration, as there is ideological uncertainty regarding its goals and policies. There are also significant ideological clashes that the Trump administration would need to address, such as the approach towards China, inflation, tariffs, fiscal expansion and the desire for a weaker dollar.
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