Le marché teste la tolérance de la Fed à une remontée des anticipations d’inflation, au moment où une nouvelle phase d’assouplissement quantitatif s’ouvre, estiment les stratégistes de JPMorgan. En attendant, le regain d’intérêt pour les actifs risqués est plus que manifeste, les actions US retrouvant à nouveau des niveaux de valorisation plutôt élevés. Mais les perspectives de croissance sont toujours aussi fragiles et donc pour le moins modérées (2,4% en 2012; 2,6% en 2013).
« Equities moved to new highs this week following the Fed’s ratcheting up of its asset purchases program to a new level. But unlike previous easing measures, this one produced a big sell off in bonds and a rise in inflation expectations. Real assets are rallying while nominal ones are being left behind or are losing outright value. The US 10-year breakeven rate — the gap between the nominal and the real 10-year UST yield — jumped to within basis points of the highs set since TIPS started being issued in the late 90s (Figure 1 p. 2). Gold is up $150 from a month ago.
Our investment strategy of the past few years has been based on asset reflation, brought on by delevering and tight fiscal policies that depress growth and induce super easy liquidity that in turn flows on to all positive-yielding financial assets.
Low growth creates a bias towards deflation. This asset reflation benefits both bond and equities, and creates strong preferences for yield and carry strategies. Yesterday’s aggressive Fed move to open-ended buying until the labor market improves “substantially”, and to remain highly accommodative for a “considerable time after the economic recovery strengthens”, raises US monetary easing to a new level, and in our view leads to the question whether the Fed will tolerate higher inflation in its quest to create jobs. If so, then we need to short most fixed income and move more aggressively into real assets.
Our view is that the Fed is not moving wholesale to creating inflation as it judges this to be ultimately counterproductive to jobs and to create more harm than good to the economy. Most importantly, it would push up borrowing cost faster than actual inflation. At the same time, the stubbornly high jobless rate and low growth do appear, to this analyst at least, to make the majority at the FOMC to be more willing to take inflation risk, at the margin.
In addition, with the new Fed QE only announced yesterday, it seems unlikely that the Fed will immediately squash any inflation speculation beyond general statements of principle. If, eg, the 10-year UST were to break 2.25% (not our forecast) and mortgage rates start to rise in coming weeks, the Fed will probably not at that point threaten to stop buying and would just ask the market to trust them.
Hence, we think it wise to add some inflation protection to portfolios. Our GMOS model portfolio incorporates already a number of these. It includes being long equities versus bonds, staying long gold, and switching credit longs into spread positions, by hedging out underlying bond duration risk. In addition, last week, we covered shorts in AUD and CAD, and this week, we go further by being long commodity currencies such as CAD, BRL and NZD. Last week, we covered our short in industrial metals on the Chinese infrastructure announcement. In equities, we open an overweight in commodity equity sectors and REITs.
Putting in inflation hedges in fixed income, through duration shorts and breakeven wideners, is the most direct way to hedge inflation, but they are not cheap anymore, in our view. As the chart to the right shows, the 10-year UST breakeven is near its all time high. And UST yields have just backed up to a 4 month high in yield and still benefit from ongoing QE and Operation Twist. We find it safer to hedge outright for rising inflation areas in markets where we believe the Fed will not object and will not interfere. In fixed income, such hedges should preferably be done through options.
The downside on the US dollar means one should be careful in overweighting global equities to bonds. We are OW MSCI World against our Global Bond Index. The equity index has a much higher dollar component than the bond index, though, making us net long the dollar in this position. We add a short DXY position to hedge this dollar risk. »