Taking stock after the summer break
4 mins to read this article
Daniele Antonucci
Daniele Antonucci is a managing director, head of investment and chief strategist at Quintet Private Bank. Based in Luxembourg, he chairs the investment committee, owning performance outcomes, and has responsibilities across research and strategy, asset allocation, portfolio management and investment communications.
Daniele’s work brings together global macro strategy with investment decision-making and thought leadership. He leads specialists across asset classes and solutions, and formulates and communicates investment views and the economic and market outlook to financial advisors, clients, senior stakeholders and the media.
Daniele joined Quintet in 2020 as chief economist and macro strategist, subsequently becoming co-head of investment and chief investment officer. He previously served as chief euro area economist at Morgan Stanley in London, having also gained international experience with other global investment banks, helped deliver strategic partnerships with leading asset managers such as BlackRock, and held positions at economic consultancies, rating agencies and think tanks.
Daniele completed the High Performance Leadership Programme at Saïd Business School, University of Oxford, earned a master’s degree in economics from Duke University and graduated from Sapienza University of Rome. A lecturer at the Luxembourg School of Business, he is a published author in economics journals, a frequent contributor to global investment media, a speaker on CNBC and Bloomberg TV, and an ECB Shadow Council member.
What matters to you in 30 seconds:
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Geopolitical tensions remain a key market driver, but stronger economic fundamentals and lower energy dependence make a repeat of the 2022 shock less likely.
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Despite uncertainty in the Middle East and fiscal concerns in the US, corporate earnings, AI-related investment and resilient growth continue to support risk assets.
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We remain moderately overweight equities over bonds, favour US and emerging market equities, and maintain a positive view on gold amid ongoing geopolitical and fiscal pressures.
Middle East
Six months into the conflict
Geopolitical risk has been back at the centre of investors’ attention for the past six months. The US-Iran conflict has disrupted energy markets, trade routes and sentiment. Oil prices have become the market’s real-time barometer of events on the ground, rising as tensions escalate and easing when prospects for a diplomatic breakthrough improve.
That still matters for the global economy, although far less than it once did. Energy intensity has fallen by roughly 60% since the 1970s, which means that economies now require much less oil to generate the same output.
Even so, the oil market remains undersupplied. Amidst bouts of escalation, alternative shipping routes around the Strait of Hormuz cannot fully replace disrupted flows, which is putting a floor under energy prices and, by extension, inflation. This means central banks face a more complicated backdrop. The good news is that policy rates are already around neutral or slightly restrictive levels, making a repeat of the aggressive tightening cycle of 2022 less likely.
Neither side appears to have strong incentives to prolong the conflict. Economic and political pressures are building in both Iran and the US. For Iran, the shock is increasingly stagflationary, with the economy expected to contract by close to 10% this year while inflation approaches 90%. In the US, President Trump’s approval ratings continue to weaken, particularly on inflation and the economy. The contrast with Treasury Secretary Scott Bessent’s “3-3-3” ambition is striking. The plan aims to achieve 3% real economic growth, reduce the federal budget deficit to 3% of gross domestic product (a measure of total economic output or income generated by a country) and raise US oil production by an additional three million barrels per day. Meanwhile, public debt has climbed to USD 40 trillion, gasoline prices remain elevated at around USD 4 to 5 per gallon, and mortgage rates are still close to 7%.
History suggests that US midterm election uncertainty may influence market sentiment in the near term, though far more than long-term equity returns. That said, the starting point remains one of solid growth. Investment linked to artificial intelligence, infrastructure and defence remains supportive, while corporate earnings continue to expand across regions. Against this backdrop, we remain constructive on risk assets and tactically moderately overweight equities relative to bonds, with a preference for US and emerging market equities.
US
What to make of Treasury buybacks?
On 19 August, the US Treasury announced that it would at least double the size of its buyback operations for long-dated Treasury securities. The official rationale was straightforward: to improve liquidity and market functioning as long-term yields move higher. In our view, there is little evidence that the Treasury market is suffering from a meaningful liquidity problem, even though it’s fair to say that August trading conditions are typically less liquid than usual. In our view, higher yields largely reflect macroeconomic fundamentals. Energy prices have risen, fiscal policy uncertainty remains elevated, bond issuance has increased and geopolitical tensions persist.
The scale of the programme is nevertheless significant. We estimate that buybacks could absorb roughly 15% of annual gross issuance of long-dated bonds, which may help limit further increases in yields. However, they do not address the underlying forces driving the market and causing broader fiscal concerns. That is why we remain tactically underweight US Treasuries.
The announcement could, however, have broader consequences for other asset classes. First, it may weigh on the US dollar, as we’ve seeing lately. If Treasury prices are being supported while the underlying fundamentals remain under pressure, part of the adjustment may occur through the currency instead. After a period of stabilisation for the greenback, when we were neutral, we hence once again expect moderate US dollar weakness, also helped by the relative stance of the European Central Bank (ECB), which markets now see hiking interest rates once again (hence contributing to strengthen the euro).
Second, the move reinforces the case for gold. Investors continue to search for alternatives to rapidly rising public debt across developed economies. At the same time, central bank demand remains strong. Taken together, these factors could provide further support for gold prices. We therefore maintain our overweight position in the precious metal within our tactical asset allocation.
This week
US labour market report, Eurozone inflation
Markets face a busy week of economic data that could shape expectations ahead of September’s key central bank meetings.
Last week in Jackson Hole, during the annual central bankers’ symposium, Kevin Warsh, US Federal Reserve Chair noted a stable labour market and low jobless claims and emphasised that monetary conditions are not restrictive, potentially hinting at an interest rate hike, in line with our forecast.
So, on top of the ISM manufacturing and services surveys (Tuesday and Thursday), attention will be on job openings (Tuesday), ADP private employment figures (Wednesday) and, ultimately, the typically market-moving labour market report (Friday). After softer-than-expected job data in July, investors will be looking for the latest evidence on whether the labour market is cooling off or if seasonal and one-off factors have masked the underlying strength of job creation.
In China, manufacturing and services PMIs (purchasing managers’ indices, a key gauge of economic activity, Tuesday and Thursday) will provide an updated view of the strength of the recovery.
In the Eurozone, the August inflation figures on Tuesday are likely to show renewed upward pressure from higher energy prices. A stronger inflation print would strengthen the case for another ECB rate increase at its 10 September meeting, to 2.5%, which we now expect.