Prospettive
& attualità.

•    Donald Trump ended up abandoning his threat to raise EU tariffs to 50% in June and instead returned to talks on an agreement by July 9, the same date the White House expects to see other agreements reached.
•    European inflation came in at 1.9% in May, or below the ECB’s target so the bank was able to make a fresh 25bp cut this month.
•    In Asia, activity is weakening, with Caixin manufacturing PMI, an indication of momentum among export SMEs and private sector companies,  moving into contraction territory.

The US administration is pushing the idea that the protectionist phase will end around the July 4th celebrations and that it will then focus on a programme of tax cuts and deregulation, which investors seem to believe in. The draft budget being drawn up in Congress does indeed raise hopes of a net fiscal stimulus of around 1% of GDP.

•    Moody's withdrew the US's AAA rating due to rising debt, leading to an increase in US Treasury yields.  
•    A budget compromise proposed by the Trump administration was narrowly passed in the House of Representatives, including tax cuts as well as reductions in healthcare spending and green subsidies, but it still needs Senate approval, promising lengthy discussions.
•    In Europe, the trade threat could substantially hamper growth, while in Asia, China and Japan are already facing economic challenges, prompting authorities to implement monetary easing measures.

Depuis le début de l’année, les marchés obligataires évoluent dans un environnement macroéconomique mouvant, marqué par des signaux contradictoires entre les grandes zones économiques. Alors que la Chine était confrontée aux mesures protectionnistes américaines, avec en toile de fond un ralentissement de l’activité économique, l’économie américaine, longtemps perçue comme résiliente, commence à montrer des signes d’essoufflement. Les craintes d’une récession outre-Atlantique se renforcent, alimentées par la perspective d’une baisse de la consommation et une résurgence de l’inflation. 
Les investisseurs doivent ainsi composer avec des dynamiques divergentes et une visibilité limitée sur les trajectoires des taux d’intérêt aux Etats-Unis, rendant, selon nous, les stratégies obligataires flexibles plus pertinentes que jamais.

•    The postponement of tariffs between the USA and China has brought relief to the markets, thereby reducing the likelihood of recession and inflation.
•    April's economic releases from the US have not yet shown any impact related to tariffs, with CPI inflation holding steady at 2.3%. However, the PPI figures reveal a slight acceleration in the prices of imported goods.
•    Government bond yields rose at the beginning of the week after the US-China truce, but the rise was held back by the US-Iran talks and US economic releases.

The corporate hybrid market, historically European centric, has reached the global
stage, providing investors and issuers once in a decade type of opportunities. This
asset class has taken off since 2012 and has become one of the fastest growing
credit segments. Ultimately, the instrument solved a real need for issuers: they could
now issue non-dilutive equity at a competitive cost, notably thanks to the tax deductibility of coupon in most jurisdictions. On the investor side, it also made sense
in a context of low interest rates in Europe following the debt crisis in peripheral
countries. 

Europe is entering a new phase of massive investment supported by the historic rearming and infrastructure spending plans announced recently by Germany and the European commission. This major turnaround is part of broader efforts to support reindustrialisation, technological innovation, and economic sovereignty.
It also offers a highly attractive environment for Europe’s small and mid-sized companies, particularly as their cyclical and domestic profile should allow them to fully reap the benefits these investment plans will generate for the Eurozone’s economy.

•    A meeting scheduled for this weekend between US and Chinese delegations suggests that both countries are ready to negotiate. 
•    Divergences are appearing among central banks: the Bank of England has cautiously cut rates, while the Fed has chosen to maintain rates, navigating between signs of slowing growth and inflationary pressures.
•    In Germany, Friedrich Merz was elected Chancellor after two votes in Parliament, an unprecedented event, but his determination reassured investors of future political stability.

So far this year, market performances have been essentially driven by political factors. Although the S&P500 index is now returning to its pre-Liberation Day levels, all indicators suggest that CEO and consumer confidence has dived since Trump’s announcements. The market rebound seems fuelled by a notion conveyed by the Trump administration that from July 4th, the government would turn the page on protectionism and switch to its tax cut and deregulation programmes

The world is changing rapidly - and not always for the better. The geopolitical landscape is becoming increasingly tense, with extended conflicts, fragmentation of alliances, climate change, the resurgence of protectionism and the rise of populism. These dynamics are causing deep and lasting disruptions that challenge supply chains, economic stability, and population security.

•    The US administration is ready to talk to China about lowering tariffs to 50-65%, in exchange for concessions.
•    Uncertainty and trade tensions have weighed on macroeconomic data, with a slight deterioration in US and European PMI indices, and US companies now considering passing on higher costs in sales prices.
•    In the US, several members of the Federal Reserve are supporting a cautious approach to rate cuts, because of inflationary risks linked to the trade war. In Europe, the ECB's chief economist is not ruling out a rate cut in the near future.

• Despite contradictory announcements from the Trump administration, markets reacted positively to the temporary tariff exemptions on Chinese technology imports and progress in trade talks with Japan.
• The Fed is taking a wait-and-see approach to avoid inflation expectations becoming unhinged, as the economic outlook worsens, despite solid US retail sales due to pre-tariff advance purchases. 
• The ECB is benefiting from the euro's appreciation, which gives it room for manoeuvre to ease monetary policy without worrying about the Fed's immobility.