The last week in the markets represented a break with what we can observe in recent months. Since mid-May, observers have been trying to register a kind of calm with lower volatility, a recovery in the stock market and stability in the bond market. It was finally a setback with a big drop in stocks and the bond correction started again with renewed vigor in Europe as in the US.
The yield curve in the US has failed to stabilize. Fluctuations in bond prices are very high. Notable inflation as well as ECB rhetoric have helped calm these latest moves, on the contrary. The Fed is likely to be more hawkish in the coming weeks.
Today, inflation is the most sensitive component of financial markets. Inflation prevents bankers from fixing on a rate or a condition.
Households will not be able to handle this high inflation. One of the keys to combating this inflation is “lower” consumption in order to mitigate the sometimes harmful effect of supply and demand.
The macroeconomic climate is often seen as transitory. Particularly from the business side, recruitment or investment intentions are rather favorable. Business leaders are cautious and do not expose themselves during a sudden break.
Households and businesses are consuming as if inflation only lasted for a short time, although some scenarios call for longer-term inflation. This behavior is above all a positive consequence on key macroeconomic data.
The general public may wonder whether or not France risks default regarding several scenarios. It is important to keep in mind, first of all, that France, like Germany, has a strong economy unlike other countries that are more likely to run into these negative scenarios: Italy, Portugal or even Greece. Secondly, France is still in an electoral process that does not allow to highlight the composition of the General Assembly.
At the national level, without going so far as to risk default, this can have an impact on public financial management. Just as people will suffer from higher rates of disease spread.
What are the risks of the real estate market?
The real estate market is the focus point. This has already been an asset class saturated with credit for years. Banks have done a lot of work cleaning up their balance sheets. They will not (again) make the mistake of redeeming credits. Restricted access conditions would have a “beneficial” effect on inflation. However, the main victims of these tightening terms will be first-time buyers. Not to forget, the 2024 environmental standards that will ban the rental of Class F and G properties.
The superposition of rising prices and environmental standards is likely to dampen the real estate market. Not to mention the lack of materials necessary for renovation and/or construction for several months. For example, some major builders are delaying projects between material shortages and the risk of financing.
From the point of view of a wealth management strategy, an investor should be attentive to the economic as well as structural changes that are taking shape. Some of the leverages that have outperformed in very low rate scenarios may need arbitrage to recover profits. The value market (banks, cars, etc.) should be looked at closely depending on the investor’s risk profile.
For your information, since March 8, which was the lowest point after the outbreak of the war in Ukraine, cars, along with power, are in the best condition by more than 15%. In the phase where problems accumulate, the value sector leads the recovery.
The dollar’s defensive stance, which is the sound of refuge for many investors focused on commodities converted into dollars, can be paired with a moderate proportion of value stocks.
Find the interventions of Igor DE MAACK and wealth management consultancy firm Vitalépargne each month on B Smart media.