The Doomsayers Were Wrong

The macro point

Within a few days, the macroeconomic landscape has suddenly become clearer. Fears of an American recession have disappeared. Even the geopolitical turmoil in Europe and Asia doesn't seem to scare the markets. Why? Because the trade war initiated by the Trump administration is less devastating than expected. The United Kingdom and China have found common ground with the United States. Several LOIs are well underway in Asia. We will not return to the pre-Trump situation regarding tariffs. But we are far from a deflationary scenario similar to the 1930s. As a result, investors are focusing on the good news and the fundamentals of publicly traded companies, which are far from bad.

However, there are still a few clouds on the horizon, particularly:

• The rise in U.S. bond rates. For now, we are not in the danger zone. Up to 4.75-5% on the 10-year, it's okay. Beyond that, expect turbulence with possible repercussions on the dollar. It's a point of vigilance to keep in mind.

• The trade negotiations between the United States and the European Union. They are at a standstill. The longer the EU takes to start discussions, the less it will be in a position of strength. With several trade agreements already on the table, Donald Trump may be less inclined to find a reasonable compromise with the Europeans. They may not have the chance to be treated as well as the British (reduction of tariffs for automobiles, universal tariff to 10%, etc.).

• Volatility in exchange rates. It's a serious problem, particularly for companies exposed internationally but also for hedge funds. Some major pairs like the EUR/USD are experiencing a weekly fluctuation of 500 points. It's huge and abnormal. Usually, such volatility concerns rather emerging currencies or occurs during periods of acute crisis.

Despite all this, the economy and businesses are resilient. What can be taken away from recent weeks is that the worst is never certain. At the beginning of April, following "Liberation Day," many rumors, falsehoods, and dark scenarios not based on the truth of figures circulated. Some mentioned an American recession as bad as the financial crisis, others feared a liquidity crisis, and finally, some raised the specter of a return of stagflation.

The reality is, as often in economics, more nuanced. The economy is slowing down everywhere, that's certain. The activity peak was reached in February in the United States. Since then, growth has been slowing, but from a very high level (higher than potential growth!). In Europe, growth is still sluggish. Certainly, Germany is investing massively in infrastructure, but it will take time before it leads to a growth revival. Finally, liquidity is abundant. It's excellent news. We must thank the central banks. We are in the middle of the largest rate-cutting cycle, outside of a recession period. And that's good for growth.

Technical point

Announcements to follow

We expect the Reserve Bank of Australia to lower its key rate by 25 basis points this week. A larger cut, around 50 basis points, is not excluded given the slowdown in inflationary pressures. Regarding inflation, UK consumer prices should confirm that the Bank of England has every latitude to lower its key rate in the coming quarters. We anticipate a rate cut of 25 basis points each quarter until the end of the year. It's already priced into the sterling exchange rate. Finally, the German IFO index will be worth watching, although it has almost no influence on the euro's trajectory. Despite an ambitious stimulus plan, Germany is still mired in economic stagnation.

The information presented in this publication is provided for informational purposes only and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should not in any way serve or be considered as an incentive to engage in any investment.