US and Europe: Monetary normalisation increasingly becoming the major theme - Natixis

After this summer’s bond rally and the depreciation of the dollar, the issue of monetary normalisation in the United States and Europe is increasingly becoming the major theme at the beginning of the school year according to analysts at Natixis.

Key Quotes

“Bond markets believe that the Fed and the ECB will take their time to ensure that inflation has really returned. We believe, on the contrary, that the balance sheet reduction is a theme that must be taken into account. We therefore remain underweighted in govies overall in the medium term, and in particular in core euro this month, and we remain underweighted in Gilts.”

“Beyond the uncertainty about inflation returning, the macroeconomic and microeconomic momentum remains positive and extensive, monetary and financial conditions remain accommodative, and macroeconomic risks remain relatively limited in the short term - except perhaps in the United States in the run-up to the debt ceiling deadline. This environment remains favourable for equities and low volatility. We therefore remain long equities overall - with a renewed preference for Europe and Japan - and long emerging assets (equities and debt). We remain underweighted in US equities.”

“We remain cautious on credit, with a preference for IG in the short term given the High Yield spread levels.”

“We are switching to neutral on oil and revising our downward scenario for 2018, and we expect a smaller rise rather in H2 2018.”