Despite low inflation rates, central banks, with Fed and ECB leadership, have initiated the process of normalizing monetary policy, carefully and gradually, nevertheless with potential negative implications for risk values.
At this stage cyclical dynamics remain positive for risky assets as opposed to valuations. Given the risks to the liquidity front, which have now increased and due to the absence of a credible alternative growth scenario, we place more weight on the valuation factor behind our choice of (small) sub - investment position in equities and our geographical preferences where we maintain the US underweight.
At the sectoral level, we turn to defensive and value industries. In this context, we downgrade our positions in the technology and healthcare sectors and upgrade the durable goods industries and US banks.
In foreign exchange, we expect the further decline in US-German spreads and the grace period that investors will give to European politicians to lead the EURUSD higher with a medium-term target of 1.2100. We are downgrading our position to gold in negative, due to deterioration of all the parameters we are watching. Maintaining oversupply conditions and weaker technicals force us to revise the range of oil price fluctuations to 40-55 dollars/barrel.