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Dealing with uncertainty
Aurelie Barthere
Key Takeaways
7 min read
  • The next few months will be marked by high uncertainty around the trajectories of growth and inflation, following the banking turmoils in the US and Europe.
  • The non-consensus view is for the Fed to hold rates high for longer than what markets are pricing, and for this high-rate regime to end with a hard landing.
  • This is the cyclical view. Tactically, our indicators have remained risk-on since Q3-Q4 2022, and seasonality indicates that April tends to be favorable to risk assets, while May tends to see a reversal.

Dealing With Uncertainty

The most acute phase of the banking equity and bond turmoil appears to have passed, seemingly thanks to the willingness, communicated by the US Treasury Secretary, to guarantee all banking customers’ deposits (not just the insured deposits under $250k), if needed. Europe led equity markets higher last week, with Deutsche Bank regaining +9.56%. In the US, Silicon Valley Bank appreciated +13.19%. Overall, credit spreads also retraced lower, and our measure of equity risk premium calculated from option prices fell to 5.6% just above the long-term average (the lower the perceived uncertainty around future equity returns, the lower the premium, and vice versa).

After the storm, the weather rarely...