In its most recent analysis of global equities, Goldman Sachs strategists highlighted two new shifts in the overall risk picture.
“Our core views remain centered on a mix of solid US growth and slowing global inflation. That mix is still supportive for risk assets and despite periodic pullbacks, many equity markets (most notably the US, Japan and India) have continued to make new highs,” they said.
In relation to this overall trend, the broker pointed out two recent developments.
Firstly, the anticipation for rate cuts within this year has been adjusted downwards, a shift further driven by the higher US inflation figures reported for January.
“We think data over the next couple of months should calm fears of stalling inflation progress. As a result, front-end rate pricing may now have swung too far, though the opportunities still look clearer in Europe,” the strategists said.
Secondly, the strategists observed initial indications of a recovery in the global manufacturing cycle and possibly a broader uptick in growth outside the US, which could continue to improve in the short term at least.
Concerns about US inflation are not as strong as they used to be. When coupled with positive developments in the global economic cycle, these ”are both potentially “risk-supportive”,” analysts wrote.
“If they occur together, they could create a short-term tailwind for cyclical equities and FX, and for non-US equity markets, although we would see this mostly as a further broadening in equity strength rather than a rotation away from the US.”