Investing.com – It has been a constructive few months for markets for the reason that starting of 2023, regardless of the turmoil within the banking sector and central banks’ responses to the inflation drawback, with the up 8% since January.
Nevertheless, within the US banking system, the primary indicators of credit score tightening are rising, with annualized contractions in each industrial and industrial loans and industrial actual property loans, on the similar tempo that adopted the worldwide monetary disaster.
“It stays to be seen whether or not lenders’ warning will proceed and lengthen to shopper loans,” wrote Norman Villamin, group chief strategist at Swiss non-public financial institution UBP, in a be aware despatched to Investing.com, including that “the prospect of a turnaround in world liquidity is extra worrying.”
“As we now have highlighted since November 2022, the enlargement of central banks’ steadiness sheets has supplied momentary assist to world equities and threat belongings. With the ECB set to withdraw over €700 billion of liquidity by TLTRO maturities and Quantitative Tightening, and with the US Treasury probably withdrawing $200 billion-$400 billion to replenish its coffers after elevating the debt ceiling, the tailwind of liquidity is ready to turn out to be a headwind within the second half of 2023,” defined the professional.
All this could happen towards a backdrop of slowing financial progress, with the USA, specifically, seeming destined to proceed slowing down, creating “the prospect of a full-blown recession within the second half of the 12 months.”
“Between June and August, furthermore, we could have the climax of the 2023 US debt ceiling disaster,” emphasised Villamin, who nonetheless expects a decision of the settlement. To see how stabilization and subsequent will increase in fairness and bond volatility occurred, he suggested traders to take a look at “the 2011 debt ceiling disaster which appears to offer a roadmap additionally for 2023 volatility.”
“If we’re proper, we count on our current elevated publicity to volatility carry methods by structured merchandise to supply traders shelter amid heightened volatility if negotiations drag on to the final minute, as occurred in 2011,” the strategist highlighted when it comes to portfolio positioning.
“This – he added – enhances the carry earned inside portfolios by conventional credit score methods, different hedge fund methods, and even EM FX carry, whereas on the similar time defending towards the anticipated enhance in fairness volatility through the summer time.”
Moreover, with the top of the cycle, UBP continues to foresee that “the energy of non-US currencies will supply a further issue of return, particularly in portfolios referenced to the . must also proceed to learn from the top of the speed hike cycle.”
(Translated from Italian)