Economic Growth

EUR/USD collapsed in the wake of last week’s hotter-than-expected US CPI report. Is this pessimism warranted and will the euro’s trading range that has prevailed since 2023 breakdown?

Fears of a hard landing are abating as growth has been surprising to the upside. New worries are emerging, such as the trajectory of disinflation, and the pace and timing of rate cuts. In this environment, it is important to build a resilient all-weather portfolio, which protects against a correction, rising rates, or stubborn inflation but also has exposure to the AI theme.

Climbing US bond yields, alongside higher oil prices, might spoil the party for global risk assets. There are budding cracks in EM domestic bonds, and even though we like this asset class in the long run, investors exposed to it should reduce their positions for now.

We are not yet ready to downgrade equities on a tactical basis but continue to expect we will eventually do so. We present a checklist of indicators that we are watching to determine when to de-risk.

Italy is no longer Europe’s problem child. Investors will be better off reassessing their views of Italian assets, which represent a buying opportunity on a structural time horizon.