Our outlook

Weekly View - (Re) making history

The CIO's view of the week ahead.

César Pérez Ruiz, Head of Investments & CIO, Pictet Wealth Management

Weekly View - (Re) making history

Japan’s Q4 economic data release far exceeded consensus expectations, driven by both private demand and corporate investment. Hope for a V-shaped recovery is supported by a tripod of a pickup in the domestic economy, strong overseas demand and signs of capital expenditure recovery. This has driven the Nikkei index to a high not seen since the early 90s. And this was reached despite Japan’s central bank under purchasing and in the absence of foreign inflows year to date. We remain positive on Japanese equities.

Against a backdrop of strong US retail sales, US treasury secretary Janet Yellen’s push for heavy fiscal easing and improving covid numbers, US rates have been driven higher. Real US interest rates are now in positive territory, which has created some concern around the consequences for equities markets. Equities paused in their ascent last week as markets digest the rapid rise in bond yields. In such cases, the level of rates matters less than the speed of their rise and when real rates start moving, it is especially prudent to be mindful of equities multiples. We are underweight sovereign bonds and expect market volatility to remain elevated in this environment. Meanwhile, extreme weather conditions in Texas put a freeze on its electrical grid, cutting the supply to millions of Texans. In the same week, Bill Gates received considerable media coverage in the wake of the publication of his book on avoiding a climate disaster. We have strong conviction in the green transition to a more sustainable future and are positive on investments that support this theme.

A weaker economic picture emerged in Europe, with a services PMI contracting in februrary due to ongoing lockdowns despite a strong manufacturing recovery in the euro area. This means Europe will likely see a double-dip recession. However, markets continue to look through the weak economic indicators on encouraging news around the vaccination roll outs and we remain overweight equities. While the global pace of vaccination continues to accelerate, the UK’s is far ahead of Europe’s. This, along with the rise in commodities prices, has pushed the pound toward the psychological USD1.4 level and the FTSE 100 up almost 3% year to date. We are overweight UK equities. 

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