Global | Risk assets resist the high interest rates

Summary

Higher interest rates have had no significant effect on risk assets. Ample liquidity, the soft landing of the economy and contained corporate and household balance sheets are behind this trend.

Key points

• Key points:
• In early 2024, it was anticipated that the financial markets would have to contend with a scenario of disinflation, coupled with a soft landing in the United States and relatively flat growth in Europe.
• Therefore, a progressive cycle of interest rate cuts was expected. However, the reality turned out to be different. Investors had to lower their expectations for rate cuts for the year, from an expected six cuts (i.e. a total cut of 150 basis points) to just two of 25 bp each.
• This adjustment in monetary policy expectations has pushed up long-term debt yields in the United States and the eurozone, of 40 and 60 basis points, respectively, since the start of the year.
• This strong market performance has been supported by consistently strong levels of liquidity, and by the fact that both economies have managed to avoid a recession, and that household and corporate debt levels remain under control.
• In equities, strategies have sought refuge from high interest rates by investing in large companies with financial muscle and a history of growth, such as stocks linked to artificial intelligence.

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