RPT-GESTION 2019-For Lombard Odier, oxygen is becoming scarce for investors

(Read well in the 1st § "the highway" of 2017, and not 2018)

PARIS, November 28 (Reuters) – Economic and monetary developments in the United States will be the only decisive issue for global financial markets next year, says Lombard Odier, who is preparing to fly on a "road". of mountain "after" the highway "of 2017.

"This is really what is happening in the United States that has changed the paradigm of the current cycle," said Samy Chaar, chief economist of the Swiss private bank, during a press presentation on Wednesday.

"The American economy is going well, we can compare it to an athlete who wins all the races; but the American sportsman is doped "by tax cuts and an expansionary budget.

A strategy that is not sustainable in the long term, he said pointing to the recent gap between the unemployment curve and the budget deficit in the United States, a first for more than 35 years.

The evolution of growth, inflation and US interest rates will be crucial in the coming months for investors, said Samy Chaar, because of their influence on the cost of capital.

"Over the past five to ten years, there has been a negative or no cost of capital; it was a little 'the highway of finance': you could take a lot of risk in the portfolios, there was a lot of oxygen in the air. Today, we have reached the mountain road, oxygen in the air is becoming scarce. "

"We are not going down the mountain, we are going up. But for asset management, it's harder. "

EURO EXPECTED TO OVER 1.20 DOLLAR END 2019

For the economist, the turning point of the cycle will be the moment when US real rates (excluding inflation) have reached the level of potential growth.

"The Fed should raise rates in December, then two or three times in 2019. Then it is likely to stop. There will then be two scenarios: either it goes too far, a little like in 2006-2007, and we will have a crisis fairly quickly; either it remains neutral, and then some economic actors will suffer but there will be no collapse. "

In this second case, Samy Chaar does not exclude eventually recessive episodes and an end cycle equivalent to those observed in the 1950s and 1960s, with the key to downward movements of stock markets "from 20% to 30% , but not 40% to 50% ".

However, "I do not have the impression that we will have a very big economic and financial accident next year, be it a US recession, a dismantling of the euro zone or 'a hard landing in China,' reassures Samy Chaar.

For Lombard Odier's investment strategy, this outlook is reflected in a neutral positioning on equities, a restructuring of the portfolio's portfolio, underweight investment grade and high yield, and "security cushions", for example via the yen and the Swiss franc, "currencies that do well when things go wrong".

Lombard Odier also believes that the dollar has already absorbed all of the Fed's rate hikes while the tightening of the European Central Bank's (ECB) policy will be gradually integrated in 2019. The euro should therefore appreciate to the greenback next year to rise to more than $ 1.20 against 1.13 today.

See as well :

UPDATE on the 2019 Market Outlook for Managers and Strategists