Persistent inflation dampens investor enthusiasm

The latest inflation data in the United States, which confirmed that the slowdown in price growth was going to be more gradual than expected, has caused investors to lose the enthusiasm that had marked the first weeks of 2023.

"Inflation is still at higher rates than expected for this time of the year, while growth and macroeconomic data for the year are also coming out much better than expected," explained Ismael García Puente, fund manager and selector at MAPFRE Asset Management.

These data, which, on the face of it, are positive, mean that the tightening of monetary policy will continue for longer. "The resilience of the economies so far this year is surprising, in a positive sense, which is always good, but in this case, it implies tougher monetary policy for a longer time," added Javier de Berenguer, analyst and fund selector at MAPFRE Asset Management.

The maximum rate that the market expected the Fed to reach has already topped the dot chart average, standing now at 5.3% compared to the 5.1% expected by the Fed committee at the last meeting. García Puente's forecast is that rates will remain high, given the persistent nature of the inflation we are seeing.

“We’ve taken it for granted in many cases that economies are machines designed by German engineers, and that if we raise rates today, inflation will go down tomorrow, when in reality we know that everything takes time to work itself out. Economies, companies and consumers adapt to this new environment and it normally takes longer than we’d like to control inflation”, commented the fund manager and selector at MAPFRE Gestión Patrimonial. What’s important for García Puente right now are the inflation expectations of both consumers and the market.

Uncertainty in the markets

In this context, De Berenguer recommends diversifying portfolios and exercising caution in equity markets. As far as fixed income goes, he warns of structural deficits in some southern European countries that "need to be sorted out somehow."

Prospects are better in credit, given that companies have healthier balance sheets than in the previous decade and, in addition, have taken advantage of low interest rates to lengthen the duration of their debt portfolios.