By Amplegest

After an intense but short sequence during which the risks of a US recession were once again evoked, several economic statistics in August reassured the markets. In Europe, services are keeping growth above the waterline, but the fragility of activity is likely to force the European Central Bank to act sooner than expected.

The US employment figures published at the beginning of August made traders nervous. The spectre of recession was once again raised by some economists, who claimed that the Federal Reserve had been playing with fire by keeping rates high for too long. The market was soon reassured by a series of figures on consumer spending and activity in general. These delays do not call into question our scenario of a soft landing for the US economy. The recent publication of GDP for the second quarter at +3% confirms this idea, even if we expect activity figures to be a little weaker in the coming quarters. Inflation figures remained moderate, though still above the 2% target.

This warning about the US economy, combined with wise prices, seems to have made the Federal Reserve realize that it must act sooner rather than later. Jerome Powell does not want to run the risk of acting too late and being criticized for his inertia. The rate-cutting cycle should therefore begin in September and continue at a moderate pace through the fourth quarter.

In Europe, growth was weak, saved by more dynamic services. Industry remains sluggish and unable to take off. Germany is currently the black spot on the European continent, due to its highly industrial position. The rebound in tourism is benefiting countries such as France, Spain and Italy. European inflation remained moderate throughout the summer and is now close to the European Central Bank’s target. Recent wage moderation is reassuring in this respect. All indications are that the European monetary institution will continue the rate-cutting cycle it began in July. As in the United States, we expect two to three rate cuts between now and the end of the year.

The aforementioned episode of high volatility in early August was also due to Japan’s first rate hike after decades of deflation. The Japanese equity market lost 12.4% in one day, and nearly 20% in three days. Since then, it has almost fully recovered. The Bank of Japan will remain very cautious about its future actions.

Chinese growth is still weak by the usual standards, and will no doubt require further fiscal and monetary intervention. India, with growth in excess of 7%, is currently the biggest relative contributor to global growth.

We enter this post-summer period convinced that global growth will be sufficiently solid for there to be no more talk of recession, and that inflation will continue its slow decline. This is a rather favorable scenario for financial assets. Extra-financial events, such as the evolution of conflicts in Ukraine and the Middle East, or the US election, could once again trigger sequences of volatility.

We have maintained our allocations to equities, with a preference for growth sectors, and to bonds, notably through our carry funds. We remain slightly underweight in risky assets in our moderate mandates, and neutral in our balanced and dynamic mandates.