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Bank of America's three strategies for 'playing' on the stock market with the strength of the dollar

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Analysts Bank of America they have it clear. "Recent US economic data adds to the evidence that the global cycle is weakening, which implies that there will be no more upside potential for European Union stocks".

According to your assessment, "weaker growth means greater uncertainty and thus a renewed strength of the US dollar, which is expected to weigh down raw materials. "

For Bank of America, there are clear indications that global growth momentum is weakeningas the global PMI is 3 points below its 15-year high, largely affected by a 9-point drop in the US PMI.

The recent flow of data from the US, such as retail sales, consumer sentiment, and workplace mobility data, points to a continued loss in growth momentum.

For these analysts, a key debate is whether US growth will accelerate again once the latest wave of Covid-19 subsides, supply disruptions are resolved and corporate inventories rebuild.

"We believe a re-acceleration is unlikelyAs the US growth rate implicit in the PMI remains high, the fiscal impulse has turned negative and the momentum of the reopening has lagged, "they argue.

STRATEGIES TO PLAY WITH THE STRENGTH OF THE DOLLAR

According to their analysis, given that global growth will slow down, macroeconomic uncertainty is likely to increase, implying a renewed rise for the dollar. "We see three implications for variable income European ", they affirm.

1. The first is that remain underweight in Mining, due to its expectation of a moderate boost to Chinese growth and a rebound in the dollar, consistent with an underperformance of around an additional 5% for the second quarter of next year, following an underperformance of 11% over the past two weeks.

2. Second, remain overweight in finance and value versus growth. "While the strength of the dollar will weigh on the oil price and therefore, on inflation expectations, we see an advantage for the yield of US 10-year bonds, which supports finances and value stocks, "they explain. Their forecast is that real bond yields rise as central banks begin to eliminate monetary policy accommodation.

3. Third, remain underweight in pharmaceuticals, which tends to perform better when the US dollar appreciates, given its high exposure to US sales. However, they expect the momentum from the strength of the dollar to be offset by the drag from rising US bond yields, implying a 9% underperformance in the middle of the first quarter of next year.

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