(News Bulletin 247) – As the first quarter of the 2023 financial year has just ended, the Fed is continuing its restrictive policy in order to fight inflation. And the battle does not yet seem won for the US central bank headed by Jerome Powell.

Thus, although US inflation came out below expectations at 5% vs. 5.1% over one year in April, core inflation increased from 5.5% to 5, 6%, notably driven by the rise in prices observed in services.

In this context, at Natixis, Jean-Jacques Friedman, Director of Investments, and Stephen Ausseur, Director of Advisory Management, are closely monitoring the recovery of indicators and growth prospects. And are alert to opportunities that may arise.

‘For the moment we are overexposed but we should return to a neutral level within a few weeks and then be underexposed on the equity market by the summer’, indicate the two men.

Their idea? Move towards sovereign bonds in order to balance their portfolio, bond rates making it possible to erase the downward movement triggered after the bankruptcy of SVB.

While IMF forecasts predict a decline in global growth (which should drop from 3.4% in 2022 to 2.9% in 2023), the reopening of China is of interest to investors. Still according to the IMF, after +3% in 2022, the Middle Kingdom could reach growth of 5.3% in 2023 then 4.9% in 2024.

On the Old Continent, the Stoxx600 Index, which brings together the 600 main European stock market capitalisations, has highlighted the performance since the start of the year in several sectors, such as distribution (+21.7%), technologies (+20.6%) travel and leisure (+19.9%), Auto (+17.3%) or even construction (+15%).

According to Natixis, these activity data confirm stronger growth than initially anticipated. The scenario of a substantial slowdown in the economy is thus beginning to be ruled out, in favor of that which would see the central banks continuing their fight against inflation by finally continuing their restrictive policy.

However, the scale of the tightening achieved in the USA justifies a more cautious approach allowing the effects produced on the cycle to be measured. This is why the US Federal Reserve (Fed) confirmed the more moderate pace of rate hikes with another 25 bp rise. In the euro zone, on the other hand, the ECB continued its action with an increase of 50 bp.’

At this stage, the markets are indeed waiting for a new inflection from the central banks. ‘Markets reacted with relative calm to the recent turmoil, giving up some of the gains made at the start of the year, without however correcting significantly. This more volatile context invites active management of risk exposure, ‘underlines the financial institution.

In the longer term, Natixis identifies the risk of the economy slipping into recession through the tightening of financing conditions.

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