Perspectives Pictet

While a global recession may not be imminent, we are clearly late in the cycle and economies and markets are not immune from accidents. Certain well-defined investment themes are particularly relevant at this juncture, argues Pictet Wealth Management’s head of investments.

While a global recession may not be imminent, we are clearly late in the cycle and economies and markets are not immune from accidents. Certain well-defined investment themes are particularly relevant at this juncture, argues Pictet Wealth Management’s head of investments.

Pictet Wealth Management's latest positioning across asset classes and investment themes.Asset allocationWe remain underweight global equities, but continued stimulus and an economic backdrop that is not catastrophic mean this is nuanced by neutral positions in some regions. We favour stocks of companies that have pricing power as well as those showing healthy dividend growth and low leverage.We are neutral US Treasuries as a way to protect portfolios, but underweight negative-yielding...

We expect the ECB to strengthen its forward guidance by linking the future path of policy rates to a new asset purchase programme.We estimate that a new QE2 programme worth at least EUR600bn would be needed for the ECB to close a 0.50% inflation gap. If anything, the decreasing marginal returns of QE and the risk of a de-anchoring of inflation expectations call for a more aggressive programme.How much does the ECB need to ease? QE size matters, but so do other parameters including the...

The downward tilt to bond yields means we have revised down our year-end forecast for the 10-year US Treasury yield.The impressive 52 basis points fall in the US 10-year Treasury yield to 1.5% made August a remarkable month.Unsurprisingly, the fall owed much to the fear that additional US tariffs on Chinese imports could prolong the global manufacturing recession, thereby increasing the risk of contagion to the services sector and hence sparking a general US slowdown. It seems that market...

We now see two additional Fed rate cuts, one in September and one in in October, versus our previous call of only one in September.We continue to expect the Federal Reserve (Fed) to cut rates by 25 basis points on 18 September.Instead of staying put at its 30 October meeting, we now think the Fed will use it to announce a further 25 bps cut, mostly due to the recent escalation of US-China trade tensions.Those two additional cuts still fit within the Fed’s vaguely-defined ‘insurance’...

The CIO's view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week...

The CIO's view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week...

Spreads on Italian debt could continue to drop, as Italy’s relations with Brussels become calmer. But much will depend on the new government’s durability and its commitment to reducing the debt burden.President of the Republic Sergio Mattarella has instructed Giuseppe Conte to form a new government backed by a coalition of the Five Star Movement (M5S) and the Democratic Party (PD). Importantly, there are still many hurdles to overcome, and a last-minute breakdown in discussions cannot be...

Together with the economic slowdown, declining support for the governing coalition may (or may not) open the way to greater fiscal stimulus.The results of Sunday’s state elections in Saxony and Brandenburg will be scrutinised closely. A heavy CDU or SPD defeat would send shock waves through Berlin.Germany’s slowdown has raised expectations for further fiscal stimulus. The fragile situation of the two mainstream parties makes decision-making more complicated.Nevertheless, at least the debate...