Some hope for future5 Oct 2022 20:41
UK is not the only country facing problems. Adjriou said this is the worst global macroeconomic environment since the end of the Second World War, combining every crisis seen over the past 40 years: stagflation, an energy shock, a tech bubble and now a sovereign debt crisis.
But like every other crisis, he said this one will eventually pass.
“There are four steps in a bear market,” he explained. “The first step is higher yields. The second step is buyers and sellers fighting, so you have bear market rallies, but the trend is down.
“The third step is the capitulation of investors and the final step is the capitulation of central banks, at which point there may be a rebound.
“We are between the second and the third steps, and some bonds, not all, are starting to present opportunities, like US Treasuries. The Fed hasn't capitulated, but the risk is clearly asymmetric. I’m not saying yields can't go higher – they could, by 20 to 25bps, for example. But we are towards the end of this rising-yield cycle.”
Adjriou said it is difficult to see fixed income opportunities away from dollar-denominated assets, as even though the currency looks expensive on most metrics, the fundamentals that have driven it higher are still in place. For example, the US is a net exporter of gas, and is one of the few developed markets whose economy can cope with higher interest rates.
He added that the dollar will only start to weaken if oil & gas prices fall or if the Federal Reserve pivots and starts to cut rates, which he can’t see happening for a few months at least.
In the longer term, though, he said the US is one of a number of major developed markets that, just like the UK, could be forced to ‘default’ on its bonds by allowing inflation to run far above interest rates.
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