Summary
Our monthly Global Investment Views highlights the latest views, convictions and outlook of our CIOs.
Fed rate cut boosts the markets but for how long
Capital markets whipsawed between a weakening US labour market and hopes that the Fed would successfully steer the economy towards a soft landing.
Three hot questions
- After the jumbo Fed rate cut in September, have you changed your policy expectations?
- How do you explain the divergence of the BoJ with the Fed?
- What is the impact of China’s monetary stimulus on the country’s economic growth?
Opportunities across DM yield curves
Economic growth is moderating but not collapsing across the developed world and inflation is falling in line with central banks’ targets, indicating that the central bank put is firmly in place. As a result, we are mildly positive on risks and aim to ensure that all elements for enhancing long term returns, and portfolio resilience (hedges and duration) are well-explored. On the latter, we are diversified across the curves and actively adjust this stance to accommodate regional nuances, taking into account opposing pressures (falling inflation, growth, fiscal deficits) on yields.
Carry is attractive but tilt towards quality
US elections have re-ignited the focus on fiscal deficits and debt not just domestically, but also in other parts of the developed world. Hence, while it is important to maintain a long-term focus on duration and how deficits could put upward pressure on bond yields, investors should not ignore the near-term market dynamics. On the monetary side, we are seeing a continuation of the rate cut cycle by the ECB, the BoE and the Fed, coupled with a no-recession scenario.
Participate and prioritize valuations
Weakening data coming from the US is consistent with a soft landing but any probability of a worsening environment is not priced in by the markets. With this slowing economy, it is difficult to see margin expansion and we believe earnings forecasts are likely to come down. On the other hand, some companies are generating strong cash flows and that has been supportive of share buybacks, which are supporting markets particularly in the US, and boosting positive sentiment.
Read more
