Coffee Break

Last week in a nutshell

• The ECB and the Bank of Canada cut reference rates as the US decision to impose tariffs on trade has increased downside risks to economic growth.
• In anticipation of tariff disruptions, macro data at the end of the first quarter showed China’s economic growth at 4.5% and US retail sales remaining solid.
• Surveys conducted in April (Germany’s ZEW economic sentiment index or the Philadelphia Fed Business Outlook) fell sharply, indicating tariff trouble ahead.
• Goldman Sachs confirmed the strong Q1 results of the financial sector in the US, while LVMH earnings disappointed due to a strong Asian deceleration.

Investment convictions

Core scenario

• Higher tariffs and rising uncertainty, coupled with weaker growth and tighter financial conditions will weigh on consumer spending, corporate investments and asset valuations.
• In the US, growth is weakening under the weight of self-imposed tariffs, while inflationary pressure will rise, hampering the Fed’s ability to cushion the blow. Outside of the US, the hit from tariffs to growth should also be felt.
• Europe somewhat mitigates the negative impact thanks to fiscal support and diversified trade ties, and the monetary easing from ECB which still has some space to cut rates as inflation recedes.
• China’s fragile recovery is challenged by deepening deflation and massive retaliation in the trade conflict amid rising geopolitical tensions. The Politburo is meeting at the end of April.

Risks

• Growth fears are intensifying as tariff announcements reshape monetary policy expectations, highlighting the growing strain on global financial markets, supply chains and the economic outlook.
• The corporate sector faces major disruptions and uncertainty due to tariff barriers, leading to production and investments delays while lowering profit margins.
• Tariffs are being used as tools for revenue generation, national security, and geopolitical leverage—raising the risk of prolonged trade tensions and structural damage to international cooperation and supply chain resilience.
• As the US-China confrontation escalates – with tariffs at the centre – global risks intensify, and the question remains: who wants to deal in Mar-a-Lago when confrontation, not cooperation, sets the tone?

Cross asset strategy

1. Amid heightened macroeconomic uncertainty and increasing policy-related headwinds, our cross-asset strategy remains cautiously positioned, emphasizing downside protection and diversification.
2. Global equities:
   • We maintain an overall negative stance on global equities, reflecting concerns over earnings outlook, weaker global growth prospects, and growing geopolitical tensions.
3. Regional allocation:
   • We are negative on US equities, where both valuations and earnings growth assumptions face downside pressure. The erratic tariff rhetoric threatens the long-standing US exceptionalism narrative, putting further strain on equity multiples.
   • We are slightly negative on the euro zone and Emerging Markets equities. The euro zone faces a delicate balance between fiscal stimulus and trade tensions, while Emerging Markets—especially China—are directly in the line of fire amid escalating trade conflict.
   • Japan’s structural tailwinds are noted, but the strength of the yen and trade pressures undermine near-term upside.
   • We are neutral on the UK equity market.
4. Factor and sector allocation:
   • In this environment, our equity positioning remains defensive, favouring low-volatility and quality factors over cyclical or growth exposures.
5. Government bonds:
   • Our government bond strategy is constructive, but limited to core Europe, where we are long duration, supported by falling inflation and expectations of additional ECB easing. Despite volatility in sovereign spreads, European yields remain attractive and provide valuable diversification in multi-asset portfolios.
6. Credit:
   • We hold a neutral stance on Investment Grade credit, recognizing the strength of corporate fundamentals but acknowledging that a broader “risk-off” mood is capping upside.
   • We are negative on the high yield segment as spreads have started to widen and sentiment remains fragile in the face of policy uncertainty.
   • In the ongoing uncertain and risk-off environment, we are also negative on Emerging Markets debt. While real yields are regionally attractive and a weaker USD could help, the combination of slowing global growth and intensifying trade tensions calls for greater caution.
7. Alternatives play a crucial role in portfolio diversification:
   • We continue to see value in alternative assets—notably precious metals such as gold and silver, which remain effective hedges in an environment of heightened volatility and trade uncertainty.
8. In currencies, exchange rates will remain a focal point in trade discussions and broader market dynamics:
   • We have a positive view on the Japanese yen, which we see as a likely beneficiary of increased risk aversion.

Our Positioning

Looking forward, the global macro landscape will remain dominated by uncertainty – driven by a combination of slowing growth, rising inflation, persistent geopolitical tensions, and shifting monetary policy expectations. The US economy, once the anchor of global earnings and market leadership, is now showing clear signs of deceleration. The prospect of a more prolonged trade and currency war, combined with weakening domestic demand, challenges both equity valuations and corporate profitability.
While central banks remain the key stabilizing force, policy effectiveness may be tested if inflation surprises or if confidence erodes further. In this context, we believe monetary support can dampen volatility. Our cautious stance reflects a desire to protect capital and preserve flexibility. In equities, this translates into a defensive regional and factor bias. In fixed income, we are long duration on core European government bonds, while our credit exposure is kept selective. Until there is greater visibility on these fronts, we believe a prudent, risk-aware positioning is essential. In short, this is not the time to chase risk but to stand ready to adapt as clarity emerges.