Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley), has weighed in on the latest Eurozone inflation figures.
“Eurozone inflation surprised to the upside today, and is also above the ECB’s 2% target for the first time since April. What’s more, core inflation, which excludes volatile food and energy prices, held steady at 2.3%, above expectations for fall to 2.2%. The figures confirm the ECB’s own projection for inflation to oscillate around target through the end of the year.
“Relatively muted goods inflation and slowing energy prices offset still robust growth in the price of food and services. Given this, we think the ECB rate cutting cycle is coming to an end, though what happens next also depends on the trade tariffs and their impact on economic activity and inflation. Several Governing Council members, including President Lagarde, flagged that the central bank, after cutting eight times in about a year, is now well positioned to support growth while keeping inflation at target.
“With inflation now close to the ECB’s 2% goal, policymakers in Frankfurt have room to stay put. With the Fed set to cut rates in September, we think the interest-rate differential is likely to lead to a further euro appreciation vs the dollar, which is why we have a reduced dollar exposure relative to our target weightings.
“Our long-term, strategic asset allocation remains highly diversified across asset classes and regions. Tactically, we retain overweight positions in European, Japanese and emerging market equities. We continue to hold low volatility equities, as these tend to outperform during bouts of volatility, reducing overall portfolio volatility should uncertainty rise again.
“Turning to fixed income and commodities, defensive positions in short-dated European government bonds, continue to play an important role. These allocations help mitigate downside risks in the event that economic data underperform expectations. In corporate credit, we’re overweight high-quality European investment grade bonds, issued by companies with solid balance sheets, which we prefer to their US counterparts.
“Finally, the broader geopolitical fragmentation we observe, with emerging markets seeking alternatives to the dollar-centric system, could also provide further support to our overweight position in gold.”
