Comment from Patrick Artus, Senior Economic Advisor de Ossiam, filial de Natixis Investment Managers
Uncertainty is typically associated with a fall in long-term interest rates on government debt, a fall in stock market indices, an appreciation of the US dollar, and a widening of credit spreads.
The level of uncertainty facing the global economy is very high. This includes geopolitical uncertainty (with the risk of war), economic uncertainty (related to growth and the effects of artificial intelligence), political uncertainty (uncertain results of upcoming elections in the United States and Europe) and financial uncertainty (with rising levels of public debt, banking deregulation and the development of new financial assets).
Typically, high uncertainty is associated with:
● A fall in long-term interest rates on public debt, as these debts serve as a safe haven;
● A decline in stock indices as uncertainty drives investors away from stocks;
● An appreciation of the US dollar, which also serves as a safe haven;
● A widening of credit spreads;
● An increase in the price of gold.
However, today:
● Interest rates on public debt are rising;
● Stock market indices do not show a downward trend;
● The US dollar is depreciating against the euro;
● Credit spreads remain low;
● The only evolution in line with expectations is the increase in the price of gold.
Perhaps the uncertainty is not fully perceived by investors, or it is more focused on public finances and the situation in the United States than on companies.
The level of uncertainty is very high today
Uncertainty today is very high. Refers to:
● Geopolitical uncertainty, with wars (Ukraine) and potential conflicts (Taiwan, Venezuela, Greenland, Iran);
● Economic uncertainty, with unclear growth prospects, particularly in the United States (growth is driven by consumption by higher-income Americans, spurred by rising stock market indices), in China (growth is highly dependent on exports) and in Europe (growth is weakened by stagnating productivity and a declining working-age population), as well as uncertainty about the effects of artificial intelligence on employment, productivity and profitability of capital;
● Political uncertainty, with unpredictable results of the US midterm elections and the rise of populist parties in the UK, France and Germany;
● Financial uncertainty, with increasing levels of public debt (US, Eurozone, UK), deregulation of banks in the US and the emergence of new financial assets (cryptocurrencies, stablecoins, central bank digital currencies).
What does a high level of uncertainty typically indicate?
A high level of uncertainty, as seen today, typically leads to:
● A fall in long-term interest rates on public debt, as uncertainty often leads investors to prefer public debt over private debt;
● A decline in stock market indices, as uncertainty often deters investors from stocks, which are risky assets;
● An appreciation of the US dollar, which typically acts as a safe haven currency in periods of instability;
● A widening of credit spreads, reflecting the increased risk of owning corporate bonds;
● An increase in the price of gold, which is traditionally a hedge against uncertainty.
The Covid crisis, therefore, triggered movements in the prices of various financial assets in the expected direction, in line with the increase in uncertainty.
The current situation is very different
Today we observe:
● From October 2025, an increase in long-term interest rates
● From the beginning of 2023, a strong increase in stock market indices
● From February 2025, a significant depreciation of the US dollar against the euro, but not against the yen
● Corporate credit spreads remain at a very low level
● The price of gold has risen sharply since the beginning of 2024
With the exception of gold, all other financial asset prices have recently behaved as if uncertainty were very low, rather than very high.
Summary: how can we explain the current situation?
How can we explain that, despite high levels of uncertainty (geopolitical, economic, political, financial), long-term interest rates remain relatively high, stock market indices continue to rise, the US dollar is weakening, and corporate credit spreads remain low?
Several explanations can be proposed:
● Uncertainty may not be fully perceived; However, financial market participants continually debate different types of uncertainty;
● Uncertainty focuses mainly on public finances (hence the relatively high level of long-term interest rates) and the situation in the United States (hence the depreciation of the dollar), rather than on the situation of companies (hence the rise in the stock market and the low level of corporate credit spreads).
● The risk is that, in the future, uncertainty will extend to economic growth and corporate results, leading to a downward correction in stock market indices and a widening of corporate credit spreads.
