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Expert Opinions

Dovish Central Banks offset mixed macro messages

Premier paragraphe

Whether it’s the trade war—now being waged on multiple fronts by Mr. Trump—or the rising likelihood of a hard Brexit, heightened political risks threaten to add even greater pressure onto a growth environment that has already shown signs of weakness as of late.

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Dovish Central Banks offset mixed macro messages
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Whether it’s the trade war—now being waged on multiple fronts by Mr. Trump—or the rising likelihood of a hard Brexit, heightened political risks threaten to add even greater pressure onto a growth environment that has already shown signs of weakness as of late. Leading indicators continue to soften, not a good omen for the business cycle and corporate profits. Consensus estimates now point to a flattish earnings growth six months out. Further downside risks to economic activity could thus translate into an outright earnings recession, a scenario which does not appear to be reflected in current equity valuations. 

In this context, the only argument preventing us from downsizing our equity positions to an underweight, is the very dovish stance taken by world central banks. The Fed and Mr. Draghi just reactivated the central bank put, and experience taught has not to swim against a policy-driven liquidity tide. While we remain neutral on equities, we prefer to add risk by increasing our exposure on corporate credit an EM bonds, which should continue to benefit from an enduring search for yield.