At a glance
Economics
- US economy remains robust. China's growth stabilizes at a comparatively low level.
- Europe: economy slowly regaining momentum, consumption-supported upturn from the summer.
- ECB moves ahead with interest rate cuts from June, Fed expected to follow at the end of the year.
Equities
- The stock markets have recently corrected slightly. US equities have fallen more sharply than their European counterparts.
- We have used the recent weakness to neutralize our equity allocation and reduced our US underweight.
- Until the US elections, we expect a volatile sideways movement with limited upside potential.
Bonds
- Interest rate cut expectations for the Fed further reduced in view of stubborn inflation data in the US.
- Increased rate volatility and inverse rate structures on both sides of the Atlantic continue to favour duration close to neutral.
- Idiosyncratic stress in HY, IG fundamentally and technically well supported. EM local currency bonds favoured.
Commodities
- Gold defies higher real interest rates, a firm dollar and ETF outflows. Hot in the short term, but still an important hedge.
- Crude oil in a sideways trend without geopolitical escalation. Supply and demand currently appear to be in balance.
- Industrial metals benefit from recovery in the manufacturing sector and ban on Russian metal. Overheated in the short term.
Currencies
- The robust US economy and the later start of the US interest rate turnaround are giving the US dollar a tailwind.
- However, these factors are now largely priced in, so further upside potential appears limited.
- We expect the exchange rate to tend to move sideways until the end of the year.
