Anchor Insights December 2023

• The stock markets closed one of the best months in recent years by anticipating a change in monetary policy.
• Sharp decline in the different sections of the interest rate curve, compressing the spread between the 2-year and 10-year brackets, but the curve remains inverted.
• Gold at record highs on expectations of rate cuts. Oil continues to fall, so OPEC+ decided to cut supply to prop up its price.
• The euro falls against the dollar as monetary cycles synchronize.

• The "Magnificent 7" could peak and give rise to a large sectoral rotation.
• The duration starts to make sense for a ultra short-ultra long barbell.
• The USD could suffer from the Treasury's financing needs and the spending ceiling.
• China's lack of momentum continues to weigh on commodities.
  

Long-Term Opportunities:

• Cyclical consumption: It usually bottoms out before the start of recovery.
  
• Renewables: The need to decarbonise drives huge plans to invest in renewable energies.
  
• Real Estate: In the face of a stabilisation of interest rates and a readjustment of valuations.

• Credit spreads at medium levels, on both European and US bonds.
• Stabilization of yields on government bonds, both European and American.
• We expect a repricing in high yield in both euros and dollars in the face of an increase in default rates. Preference for BB.
  

• The euro and the dollar are in the range of 1.08-1.045. Greater tendency to weakness in the USD by phase of the monetary cycle.
• Correction risks in real estate assets and private equity due to rising interest rates and falling multiples. 
• Stabilization of the price of a barrel due to supply cuts by OPEC+.

• Economic slowdown, recession due to tightening of monetary policy.
• Extension of the Israeli-Palestinian war to the Middle East, oil at 200 USD.
• Conflict in Ukraine, escalation of NATO-Russia tension, continued sanctions.
• The persistence of high inflation leads to social tensions and populism.
• Financial fragmentation of the Euro public debt market.
• Reduced liquidity in financial markets, volatility.
• Increase in cybercrime, disruptions to essential infrastructures.
• Instability of the banking sector, reduction of access to financing.

• Inflation has started to stabilise and show a retreat in the latest data, both in the US and in the Eurozone. Powell and Lagarde maintain an aligned discourse, highlighting that these inflation levels may be persistent for a prolonged time, assuring that they will use all monetary policy tools to meet the 2% inflation target. On the other hand, the market is pricing in that the period of contractionary monetary policy is over.
• At the end of the earnings reporting period for the third quarter of the year, we can observe a general improvement in corporate profits. We also see an uptick in GDP, which could signal the beginning of a growth spurt.
• The war between Israel and Palestine is intensifying, thus putting the conflict between Ukraine and Russia on the back burner. Both occur in key commodity countries, so if these conflicts drag on over time or tension increases, we could see an increase in the volatility of these commodities.