Investment View: Goldilocks vs. Gridlocks

In Short

Steady as she goes. Despite a poor start to Q2, global markets are closing the first half in decent shape. President Macron has just thrown a curveball, however, with the unexpected dissolution of parliament, fanning political uncertainty and erasing quar terly gains for European equities.


  • The economic story of moderate growth and disinflation smells of Goldilocks, but the politics of gridlocks. A Trump victory would fan international trade tensions, while political troubles in Europe are not limited to just France.
  • The global recovery appears slightly more entrenched, if still moderate. We are confident that inflation normalisation is proceeding again, making rate cuts more likely.
  • Political developments often support thematic financial trends, e.g. our long-standing preference for IG Credit over Govies. But we try to avoid falling into the excessive influence of political crises, often the cause of temporary spikes. The French election may be a buying opportunity for OATs, unless a fully split parliament causes stalemate and makes fiscal consolidation impossible.   
  • Until the political fog lifts, we keep our equity overweight (OW) minimal, and High Yield and Financial credit neutral. We stay long non-financial IG Credit. We like to play the range in rates, still with a long duration bias. EM markets offer good diversification benefit (both in equities and HC credit), despite near-term dollar strength.

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Investment View: Goldilocks vs. Gridlocks

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