Highlights:

• Hard landing fears are gone. Rising confidence about future economic prospects are helping global risk assets to charge ahead, even as rate cut expectations are being scaled back.
• Global markets do not look exuberant. The current pricing may reflect a ‘new normal’ rather than a financial ‘bubble’. Elevated public debt, permanent Central Bank puts and a considerable inflation shock (since 2022) may support inflation assets and lower risk premia.
• Still, the collapse of risk premia across markets contrasts with persistent policy and geopolitical risks. A Trump 2.0 scenario may challenge both the policy rate cut consensus, and the global trade order.
• We then remain neutral in stocks and High Yield (HY). We keep a selective preference for cyclicals, small cap, and EM equity. Risk asset volatility looks too low and can be used to either surf the bullish wave or protect against unexpected shocks. We seize the back-up in yields to go moderately long duration and retain a large overweight in Investment Grade (IG) credit – the new ‘haven’.

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