Amundi: US economy looks exceptionally resilient regarding the Russia-Ukraine crisis
Vincent Mortier, Group Chief Investment Officer at Amundi Asset Management, analyzes the strength of the US economy and markets following the Russia-Ukraine crisis:
“After an initial negative reaction to the Russia-Ukrainian conflict, US equities markets are now above their pre-war levels. US equity volatility has proven much lower compared to Europe, which is more exposed to the crisis and to the economic downturn.
On government bonds, the repricing has been very fast across the US yield curve. Its inversion in the 2-10 year segment shouldn’t be taken as a recessionary signal, in our view, and the 3 month-10 year interest rate differential, that we consider a more reliable indicator, remains broadly positive.
The US has exhibited exceptional resilience to the crisis, and a strong labour market continues to drive economic growth this year, despite building inflationary pressures. Europe on the other hand has been fully impacted by the conflict and faces a significant growth deceleration in 2022. Likewise in China, where the pandemic continues to proliferate despite a ‘Zero Covid’ policy, our growth forecast for 2022 has been revisited downwards.
Both the European Central Bank (ECB) and the Federal Reserve (Fed) were late to react to mounting inflation, the former more so than the latter, and the war has complicated the path toward policy normalisation. We expect rate hikes and quantitative tightening to continue, although at a slower pace in Europe compared to the US.
Inflation continues to be the key theme driving portfolio construction. Equities remain in favour, particularly in the US where earnings growth should stay positive amid a more resilient economy. Here, investors should however avoid the names most exposed to higher rates, and look at value and quality segments in the search for opportunities. The ability to preserve margins will be critical especially in H2 and 2023, and company pricing power will be key in this respect.
Strong and fast movements in the bond market call for a tactical approach to duration, now not as short as a few weeks ago. The short part of the curve now seems particularly appealing as it has already priced in most of the Fed hiking cycle, while the long end will likely reprice further. US housing related securitised markets may be particularly attractive in light of a strong housing market.”