The economic decoupling between the United States and the rest of the world is exacerbated. <\/strong><\/p>\n\n\n\n Between today and the inauguration, the U.S. major partners (Europe, China, Mexico) will have to endure and wait for the new team\u2019s policies or threats. Markets will primarily be dependent on statements from Donald Trump. Beyond the United States, political risk in Europe predominates (coalition in Germany, disagreement over attitude toward the US, budget vote in France) and adds a significant risk premium to the Zone.<\/p>\n\n\n\n SUMMARY<\/strong><\/p>\n\n\n\n INTEREST RATE MARKET: INFLATION RISK\u2026<\/strong><\/strong><\/p>\n\n\n\n The increase in tariffs, the expulsion of migrants, the closure of borders, and domestic demand support through tax cuts for households\u2014except for a desire to lower gasoline prices by supporting oil production\u2014are factors likely to delay the slowdown of inflation toward the 2% target. Therefore, the Fed will not be able to lower its key rates as much as originally expected.<\/strong><\/p>\n\n\n\n These elements will lead to a more unfavorable equilibrium for U.S. government bonds (the 10-year rate is expected to remain sustainably above 4%), although the probability of a rate exceeding 5% remains low in our opinion. The implementation of its entire program with massive budget support should be slowed down by the Republican elected officials themselves, who refuse such a debt dynamic, risking provoking a brutal reaction in the financial markets, as it took place in the United Kingdom with Liz Truss. The absolute level now seems interesting to us even if the risks persist. We will gradually increase the duration on American debt.<\/strong><\/p>\n\n\n\n As mentioned earlier, the impact of the new president’s program on European growth will not be negligible and the ECB will have to take this into account in its next meetings. The fall in rates will be more marked in the euro zone, and we are more comfortable on European bonds. It is necessary to be selective about countries.<\/strong> We favor countries like Spain, Portugal or Italy where political risk seems to be under control.In general, bond market volatility is expected to be higher this time, as it is unlikely that deficits will be reduced. We do not change our view on corporate bonds, which will be correlated with government rates.<\/strong><\/p>\n\n\n\n 10-Year Rates<\/strong><\/p>\n\n\n CREDIT: YIELD ALLOWS FOR PATIENCE<\/strong><\/strong><\/p>\n\n\n\n Credit spreads are currently slightly below their 10-year average, reflecting a resilient economic fabric despite repeated crises (Covid, inflation, Ukraine, etc.). The quality of issuers has continuously improved over the past decade. As a result, the share of BB-rated companies within high yield has increased, improving the average credit rating. Donald Trump\u2019s election should not lead to a deterioration in corporate fundamentals. His economic policy will support growth. However, its impact will vary significantly by sector.<\/strong> In the automotive sector, the presence of suppliers in the United States, positioned close to automakers’ factories, should limit the risk related to tariffs. We favor BBB and BB-rated bonds for their risk-adjusted yield profile. As shown in the chart below, the HY 1-3 segment appears particularly attractive. We prefer short durations in the current context of interest rate uncertainty.<\/p>\n\n\n\n Absolute valuations vs the last ten years<\/strong><\/p>\n\n\n EXCHANGE: THE EURO AND THE ECB UNDER PRESSURE<\/strong><\/p>\n\n\n\n In the foreign exchange market, the dollar has significantly benefited from the surge in US interest rates. This factor is expected to persist, and the reduction in the interest rate differential can no longer contribute to strengthening the euro against the dollar, with the trend reversing in favor of the US currency. We remain positive on the US dollar and adjust our range to 1.05-1.10 <\/strong>(from 1.07-1.12). Parity is conceivable in the context of an increased trade war scenario.<\/p>\n\n\n\n Euro versus USD<\/strong><\/p>\n\n\n Interest rate differentials have shifted significantly in favor of the dollar in the two years following Trump\u2019s electoral victory in 2016. The rate differentials immediately rebounded in November 2016, but a much larger increase followed over the next two years.<\/p>\n\n\n OIL: A CRUCIAL TURNING SHOT FOR U.S. ENERGY POLICY.<\/strong><\/p>\n\n\n\n As anticipated in our previous statement, Donald Trump’s victory marks a crucial turning point for U.S. energy policy. In 2024, the United States remains one of the world\u2019s leading producers of oil and natural gas, thanks to advancements in hydraulic fracturing (fracking). However, the global energy transition and the climate commitments made at international summits, such as COP26, have put the current administration under pressure to reduce dependence on fossil fuels and promote renewable energy sources. President Joe Biden had initiated extensive reforms to green the U.S. economy, notably through the Inflation Reduction Act (IRA) adopted in 2022, which supports wind and solar energy, as well as electric vehicles.<\/p>\n\n\n\n Donald Trump could, however, once again prioritize the extraction of shale gas and oil, supporting a major sector of his campaign. <\/strong>Republicans generally adopt a stance focused on deregulation and the revitalization of the oil and gas industry, thus threatening the renewable energy sector.<\/p>\n\n\n\n We believe that Trump sees a reduction in energy prices both as a way to counter the inflationary effects of his agenda and to satisfy American consumers (the election results were partly determined by this issue). On the other hand, he may view it as a means to pressure Russia into engaging in a conflict resolution process.<\/p>\n\n\n\n Oil production<\/strong><\/p>\n\n\n EQUITY MARKETS<\/strong><\/p>\n\n\n\n Local currency stock index since the beginning of the year.<\/strong><\/p>\n\n\n\n
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Furthermore, Saudi Arabia\u2019s desire to gain market share, particularly in the U.S., could be exacerbated if the U.S. supports an increase in production. Our price targets remain between $65-75<\/strong>, with an additional downside risk if U.S. crude production increases further and if sanctions on Russian oil are eased, which would weaken OPEC.<\/p>\n\n\n\n![\"\"](\"https:\/\/news.banquerichelieu.com\/wp-content\/uploads\/2024\/11\/Unknown-1-1.jpeg\")
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