Perspectives Pictet

Pictet Wealth Management's latest positioning across asset classes and investment themes.Asset AllocationWhile macroeconomic and corporate fundamentals still favour risk assets, challenges have been steadily increasing and a lot of good news is already priced into valuations. We sold part of our equity overweight during the early March rally.Even though we have become more prudent about equities’ short-term prospects, we expect to be able to redeploy the cash generated from this sale as new...

While our central scenario remains unchanged, we still see downside risks increasing from recent trade escalation.Following on from President Trump’s announcement of a 25% tariff on USD50bn of unspecified imports from China, the US Trade Representative (USTR) last week detailed the list of China-made goods that will be targeted. China reacted swiftly by detailing its own list of counter-tariffs on USD50bn worth of imports from the US. Trump then escalated the rhetoric further when he...

The Fed has been reticent to become involved in the debate over trade tariffs and still looks like placing policy normalisation on ‘auto pilot’.Among the many questions posed by the recent more aggressive trade rhetoric from the Trump Administration is whether it will ‘scare’ Federal Reserve officials, and therefore interrupt the current US tightening cycle. But recent comments from Fed policymakers, including from Chair Jerome Powell, suggest that officials remain cool-headed about recent...

Highly integrated into global value chains, the euro area is vulnerable to their disruption.Any estimate of the economic costs of protectionist measures, let alone trade wars, is subject to uncertainty given the complexity of global supply chains. A common assumption is that new tariffs on exports will produce small direct effects on GDP growth but more significant indirect effects in the event of escalating trade conflicts, including on domestic investment. Europe looks particularly...

Scorecard shows resilience of EM currencies in recent months.Our Emerging Market (EM) FX scorecard, designed to assess the attractiveness of a given currency over the coming 12 months, ranks 10 EM currencies according to key criteria such as growth and vulnerability to external shocks.There have been few changes over the past month. EM currencies have been resilient thus far in 2018, despite higher risk aversion and higher US funding costs. However, taking into account the decline in carry,...

Subdued wage growth disguises rising cost of total compensation.The next US monthly employment report (published this Friday) will once again be scrutinised for signs that wage growth is on the rise. While wage growth has been improving in recent years, the pace has remained glacial. Average hourly earnings were up 2.6% y-o-y in February, a relatively subdued pace when taking into account near full employment (the unemployment rate was 4.1% in February).There are many factors explaining the...

Two entrepreneurs have developed a simple technology that can generate renewable energy from ocean waves at a price that is competitive with solar power – attracting interest from cities all over the world.More than a billion people live without electricity, mostly in developing countries. Their cities often have access to electricity, but emissions from power plants create high levels of air pollution, which expose their inhabitants to health risks. And bills for imported fuels are rising...

Moderate rise in core inflation should not divert Fed from its current policy path.February core PCE inflation rose 0.23% m-o-m, in line with expectations. The y-o-y reading was up to 1.6% from 1.5% in January.The improvement in US core inflation remains quite unspectacular when taking into account full employment and solid underlying growth (likely to reach 3% this year).Core inflation should rise to 2% y-o-y in Q2-2018, but it is then likely to be broadly stagnant for several months.Rising...

Moderate rise in core inflation should not divert Fed from its current policy path.February core PCE inflation rose 0.23% m-o-m, in line with expectations. The y-o-y reading was up to 1.6% from 1.5% in January.The improvement in US core inflation remains quite unspectacular when taking into account full employment and solid underlying growth (likely to reach 3% this year).Core inflation should rise to 2% y-o-y in Q2-2018, but it is then likely to be broadly stagnant for several months.Rising...

The deficit declined below 3% for the first time in a decade, which should boost France’s credibility with its neighbours.France’s public deficit fell to 2.6% of GDP in 2017 according to INSEE’s preliminary assessment, down from 3.4% in 2016 and below the 3% threshold for the first time since 2007. The outcome was better than the government’s estimate of a 2.9% deficit. If confirmed, France will exit the Excessive Deficit Procedure that the European Commission opened in 2009.France’s budget...