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#Market Strategy — 10.07.2018

Guy Ertz On Our Investment Strategy Recommendations For June

Guy Ertz

The risk of a trade war is a concern.

The risk of a trade war is a concern. Trade tensions between the US and China, and between the US and the EU, Mexico and Canada have resurfaced. The risk of a vicious circle of protectionist measures and counter-measures exists.  We believe that a negotiated solution is the most likely scenario.

In our view, the bullish trend in stock markets will continue in the medium term, but volatility will remain. Our optimism is based on three fundamental reasons: an improvement in corporate profits in 2018 and 2019, the small rate hikes expected, and finally, moderate equity valuations, except in the US market, which is expensive compared with historical standards. Nothing so far undermines these three solid arguments.

Caution on bond markets. Bond yields generally fell during this risk "off" phase, especially in the eurozone. But we believe it is transitory. After the rate hike in June, our scenario is that the Fed will make 2 more rate hikes of 25bps in 2018 and 2 in 2019. No change to our targets for US 10-year bond rates, i.e. still at 3.25% in 12 months. No changes either at the ECB, which confirmed that it would remain accommodating by gradually reducing its Quantitative Easing programme by the end of 2018 without changing its official rates before summer 2019. Our 10-year rate target for the German Bund is 1.25%, driven by US rates.  We are still neutral on High Yield in euros and dollars. We remain positive on the EM bond segment in local currency.

Guy Ertz

Head of Investment Strategy
BNP Paribas Wealth Management