High Convictions Ideas
The combination of monetary policy stances (more patient and flexible everywhere), encouraging tariff negotiations, Chinese authorities proving successful in their resolution to support the economic cycle are all potential triggers (and risks when mirrored) to risk assets and might help produce a positive short lasting reaction.
However, our broad set of risk sentinels keep us vigilant and tilted towards medium/high risk perception in the medium term. This translates into a positive bias towards risk assets while managing duration on lower yield targets.
December’s sharp sell-off (equity, HY, Brent, rates), gains made by gold and the Yen on market intolerance towards further monetary tightening, the drop in economic indicators (ISM, PMI) and thin liquidity explain the US market reaction. We think risk assets will reset at more attractive levels (we might see further lows) rather than initiating a bear market.