Mosaique Views: Markets in perspective

September / october 2022

Markets are still grappling with interest rate and geopolitical risk

 

Our thoughts remain with those hurt by the dreadful conflict still raging, which puts our economic concerns firmly into perspective.

In the last month, those concerns have nonetheless become a little more pressing. Inflation and interest rates have yet to peak, and growth is slowing.

However, the severity of the downturn is still unclear. Europe is most at risk from higher energy costs, and in many cases from energy supply shortfalls this winter. As yet, however, despite widespread expectations of an imminent and sharp recession, forward-looking data have been slowing gradually, and governments seem likely to act further to protect poorer households from the worst of the energy squeeze.

Elsewhere, the important US economy is less exposed, and enjoys some underlying momentum (despite its poor GDP showing in the first half). China faces ongoing structural headwinds, but its immediate covid-related constraints have been eased, and it enjoys the rare luxury of a low inflation rate, allowing its authorities to follow a more lenient monetary policy.

So, talk of “stagflation” again seems premature to us. That said, the geopolitical climate remains troubling, and not just on account of the trauma in Ukraine. The West has been reminded that China’s claim on Taiwan is not negotiable (though that does not mean that it is imminently actionable either).

We had already reduced our equity weightings in the New Year as it became clear that central banks were indeed planning (rather belatedly) to start normalising monetary conditions that had become needlessly lax. We reduced them further on news of the invasion.

However, our equity holdings returned to neutral only: we still see corporate profitability staying healthy, and valuations, while stretched, are not outlandish. And the funds released have been held as liquid assets. Cash may not offer positive real returns, but it is more stable than securities.

We retain a long-standing underweight in bonds. With some government yields in the US now offering positive real yields to maturity, we have begun to reduce our longstanding underweight in bonds there. In Europe, however, most bonds still seem unlikely – despite recent yield increases – to deliver inflation-beating returns even on a long-term view.

Read more articles

  • Rothschild & Co adds Senior Client Adviser to its Wealth Management business in Spain

    Press releases

    Guillermo Moreno Fontaneda joins with immediate effect to meet increasing demand from clients following the launch of Rothschild & Co’s Wealth Management business in Spain in 2021

  • Rothschild & Co has been informed of Concordia’s intention to file a simplified tender offer for the Rothschild & Co shares

    Press releases

    Rothschild & Co has been informed of the intention of Concordia, the holding company of the Rothschild family and Rothschild & Co's largest shareholder, to file a simplified tender offer for the Rothschild & Co shares at €48.0 per share with dividends attached, and to request the implementation of a squeeze-out.

  • Monthly Market Summary: January 2023

    Insights

    Capital markets experienced their strongest January gains in years. Moderating inflation, easing energy prices and expectations of a slowing tightening cycle, particulary in the US, buoyed both stock and bond markets.

  • Portfolio Management and Rising Rates

    Investment / strategy

    Over the span of just a few months, we witnessed a spectacular rise in interest rates. This historical increase took place against the backdrop of a radical shift in monetary policies, as the central banks, with the Federal Reserve in the lead, have made the fight against the return of runaway inflation their priority. In this environment, portfolio management strategies need to adapt, in particular by seeking new avenues of diversification and some opportunities.

  • Strategy blog: UK mortgage rates

    Insights

    After recent record low interest rates, variable and fixed mortgage rates are surging to levels not seen since the Global Financial Crisis. In this Strategy Blog, we consider whether fixed or variable is the better option in the ever-evolving economic environment.

  • Rothschild & Co expands wealth management pension offering and strengthens team in Zurich

    Press releases

    Rothschild & Co will enter into a strategic partnership with pension consulting firm, PensExpert AG. Dr Thomas Bamert will join Rothschild & Co in Zurich as Head of Wealth and Pension Planning, Switzerland.