Federal Reserve won’t hike interest rates this year, Societe Generale’s Alain Bokobza says

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The U.S. Federal Reserve won't increase interest rates this year, and that will continue to drive gains in risk assets, said Alain Bokobza, head of global asset allocation at Societe Generale.

"This global environment will prevent the Federal Reserve to move up the rates by the end of this year," Bokobza told CNBC's "Squawk Box."

The Fed had been dialing back rate hike expectations this year, even as job creation numbers had been trending solidly and inflation had picked up. From initially signaling four rate hikes in 2016, the Fed in March indicated just two were likely on the cards. After the Fed indicated that concerns about the U.K. referendum on whether to leave European Union (EU) stayed its hand in June, markets began marking down expectations for whether there would be any hikes this year.

Even a surprisingly strong nonfarm payrolls figure for June - showing 287,000 jobs created, compared with 175,000 forecast - didn't change analysts' expectations that the Fed wasn't likely to move soon. But many still predicted at least one hike this year.

Dialing back expectations for Fed hikes was a "major change," Bokobza said. "This gives some kind of relief to global markets after quite difficult period year to date."

"We are still at risk in the coming month that we are going to continue to reprice the Fed for 2017, which is as much a boost to global risk assets on one side and, on the other side, it prevents the from doing what the consensus is expecting, which is to rise," he said.

Repricing of when the Fed would next hike rates was also behind the dollar's "very unusual" relatively benign rise in the wake of the U.K.'s Brexit vote, which was a "major risk-off event," he said.

The dollar usually would see safe-haven flows in the wake of market uncertainty.

Despite Societe Generale's positive outlook for markets, the bank has lowered its allocations to equities. That followed a strong run for the markets in the second quarter, Bokobza said.

"We are not among the bears. We are not arguing for any kind of market catastrophe in the coming two quarters or so, but we are diversifying," he said. "We have close to 50 percent equities allocation, 50 percent bonds and the rest."

He advocated Treasurys as a portfolio stabilizer and as still offering at least nominal yields compared with negative yields in much of the sovereign bond market. He also advised switching out of emerging market equities, noting that emerging market local-currency bonds would benefit from repricing the risk of Fed rate hikes.

On Brexit, he expected that despite Europe's economic growth likely taking a hit from the Brexit vote, the continent would avoid a "nasty event." He noted that the euro had become cheap, especially , which should support exports.

Additionally, he said that the region's two largest economies, Germany and France, were both pursuing fiscal loosening policies, which would help prop up growth.

Societe Generale's private banking unit had around 113 billion euros in assets under management as of the end of 2015, while its asset management subsidiary, Lyxor Asset Management, had around $129.2 billion in assets under management at the end of May.

Federal Reserve Board Chair Janet Yellen.
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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter