Prepare for rotations in concentrated and flow-driven markets

July saw tensions flare once again in the Middle East. Markets questioned the feasibility of returning to a ceasefire, pushing Brent oil prices back towards $100. Previously, prices had fallen to pre-war levels due to effective rerouting efforts and a reassessment of supply risks.

At the same time, an undercurrent of market rotations has been reshaping global equity markets. The move out of crowded trades has picked up as the market rebalances towards defensives, financials and industrials. As sector-specific drivers become more influential, performance has become more dispersed, reflected in low cross-sector correlation. In bond markets, yields rose to high levels, with initial scrutiny on fiscal space putting pressure on the long-end. 

While investor sentiment remains supported by expectations for another strong earnings season, there is little room for disappointment, which could trigger faster rotations if results or guidance fall short. Liquidity remains supportive but may wane during the summer period; leverage in some tech names and crowded trades could also amplify market movements. 

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Monica Defend

Monica Defend

Head of Amundi Investment Institute

Overall, we maintain a modest risk-on stance, but do not view this as the time to add risk. Rates are approaching elevated levels, earnings expectations leave little room for disappointment, and liquidity may wane over the summer, potentially amplifying market moves.

Monica Defend, Head of Amundi Investment Institute

Long-end rates reaching attractive value

investment

Long-end rates reaching attractive value

The macro backdrop remains mixed, with central banks remaining cautious, while inflation fears and monetary policy expectations are still being shaped by oil price dynamics. In the US, robust data and a relatively hawkish Fed are putting upward pressure on rates, supporting our cautious stance on duration, while also creating attractive opportunities in certain segments, such as the middle part of the curve and real rates. 

In the Eurozone, the ECB appears to be fine-tuning its terminal rate, with any further moves likely to reflect calibration rather than a renewed tightening impulse. Pressure at the long end is likely to remain as issuance, net of ECB purchases, continues to rise. This supports our conviction in curve steepening, further reinforced after a period of flattening. In the UK, we slightly reduced the position, confirming the steepening amid weak growth and fiscal uncertainty. 



 



 

 

Focus on resilience and selectivity

Recent weeks have shown that despite low market volatility, single-stock volatility is rising as investors increase scrutiny. Concerns over AI-related investments, profitability, valuations and supply chain risks remain in focus, reinforcing the importance of selectivity and structural resilience.  Against this backdrop, we are strategically positioned away from the US, as concentration and valuation risks persist.

We confirm our long-term view on Europe, as reforms aimed at enhancing efficiency, competitiveness and strategic autonomy should support long-term opportunities. We are constructive on Japan, underpinned by solid fundamentals, pro-growth policies and valuations. Emerging Markets also look attractive, supported by technological strengths and valuations.

 


 

Focus on resilience and selectivity

stacking coins

Mildly pro-risk, with caution

GIV MAY EM

Mildly pro-risk, with caution

The overall macro backdrop remains supportive, yet inflation is sticky, central banks are still cautious, and growth continues to diverge across regions. In this context, we remain mildly pro-risk, focusing on carry, selectivity and diversification rather than strong directional conviction. 
 

Changes vs previous month

  • Multi asset: We have further reduced concentration risk, rotating from US equities into Europe, maintaining a preference for the equally-weighted S&P 500. We have increased the position on higher-carry EM currencies vs USD.

  • Fixed income: In the US, we maintain a slightly cautious stance on duration and have added positions in long-term real rates, given their attractive levels. In the Euro Area, we have reinforced steepening positions, amid weak growth and increasing pressure on the long-end as issuance continues to rise. In the UK, we have reduced duration.

  • Equities: We are increasingly focused on Europe, as reforms aimed at improving efficiency, competitiveness and strategic autonomy should create long-term opportunities.

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