In a context where central banks remain very accommodative and vaccination is helping to limit the severity of the Delta variant, we are convinced that the economic recovery will remain strong and above growth potential in the coming quarters. However, the rebound in activity raises the question of inflationary pressures in the production system. If the current surge in inflation proves to be more sustainable and, above all, linked to an acceleration in wages, central banks will have to normalize their monetary policy further, at the risk of slowing growth. In the absence of clarity on this issue, we will have to keep a close eye on upcoming inflation and labor market data.
The environment is still favorable for risky assets: strong growth, abundant liquidity, patient central banks. Equity markets, especially in Europe, still offer attractive risk premiums in the face of low interest rates. On the bond markets, the context remains favorable for carry, particularly in High Yield and subordinated financial debt, where spreads are again tight but present a low risk of widening. However, this allocation is accompanied by greater vigilance given the valuation levels and the growing probability of a poorly contained inflation scenario.
Discover the analysis of Matthieu Grouès, Chief Investment Officer at Lazard Frères Gestion.
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The opinion expressed above is dated September 2021 and is liable to change. Latest available data as of publication date.
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