The global economic slowdown and inflation have dampened investor confidence, but the situation seems to be improving. SwissLife Asset Managers says fixed income had a great start to the year and the historically high yields, falling inflation and improving macro environment offer an attractive investment proposition.
“The question is now where do we go from here? This will largely depend on whether growth can hold up as expected while inflation continues to fall towards the central banks’ magical 2% target,” as per SwissLife Asset Managers.
Giving a brief region-wise snapshot, the investment management firm says that the US Federal Reserve is close to the end of its hiking cycle but will not cut key rates before the end of this year. This raises concerns about a soft landing of the economy.
In Europe, the fixed income market has benefitted from the strong performance of 10-year government bond rates which fell by 26bps. However, core inflation in Europe is still rising which may force the central bank to tighten monetary policy further.
“We believe rates might see one last move upwards as central banks need to enforce their hawkish message following the massive loosening of financial conditions,” says SwissLife Asset Managers.
Meanwhile, the asset manager also talks about the performance of currencies, adding that the euro and the pound have received support at the expense of safe-haven currencies – the US dollar and the Swiss Franc.
SwissLife believes the positive USD cycle has come to an end as a recession is on the horizon, and a less risk-friendly environment may allow the currency some room for recovery. However, the euro has not only appreciated against the USD but also against major European currencies.
“In the Eurozone, however, activity data produced some upside surprises as the widely feared winter recession is likely to be more of a winter lull due to the much better-than-expected energy situation,” as per SwissLife AM.
The asset manager also talks about the pound, which is expected to weaken against the USD due to deteriorating growth in the UK, whereas the Swiss Franc is likely to moderate in the near term.
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