Following a very volatile week for commodities and a weekend of speculation on Greek restructuring, investors are questioning if the risk-off trade is now dominating.
One analyst though says don’t panic on risky assets as low interest rates will underpin stocks.
“The equity risk premium is close to its long-term average in the US and does not show any anomaly in the bond-to-equity relative valuation,” said SocGen’s Alain Bokobza in a note to clients on Monday.
“The risk-free rate, or fed funds, should stay at zero for some more quarters, which should benefit all asset classes. We continue to dislike cash as an asset class, as real policy rates will stay strongly negative in the coming months,” he added.
Silver, gold and oil all made big losses last week but a weak dollar is likely to keep the commodities rally intact for the rest of the year according to Bokobza.
The dollar will remain “a weak currency on the back of the Fed’s zero interest rate policy, the second half slowdown and fears of a property market double dipping,” he predicted.
With the Bank of England and European Central Bank expected to hike before the Federal Reserve, the commodities market will act as a hedge in Bokobza’s view.
"We would not turn bearish on commodities, which remain an excellent hedge against soaring inflation expectations and against a falling dollar.”
