“While the spread of the new Delta Covid variant has unsettled the global economy, stimulus and vaccination programmes should prevent a sharp slowdown in growth” says Luca Paolini, chief strategist at Pictet Asset Management.
“Whether inflation will be transient is not so clear. The inflation debate taking place within the US Federal Reserve’s ranks has spilled out into the open, investors are still waiting for an indication of when the central bank will start to wind down its USD120 billion monthly asset purchase programme.”
“Yet, we believe the current bout of rising inflationary pressure is largely due to distortions in supply chains and demand for Covid-sensitive items such as used cars, which add as much as 2.5 percentage points to the headline reading.”
“An additional worry for investors is China. Covid-driven lockdowns, a tightening of credit supply earlier this year and Beijing’s regulatory and market reforms have dampened growth and raised uncertainty for the business community.”
“With this in mind, we have chosen to reduce exposure to some cyclical stocks, primarily downgrading Japan. The economy is facing a renewed surge in Covid infections and a slow vaccination rate. The Bank of Japan is also struggling to stimulate the economy in the face of sluggish private credit creation, currently at its weakest level in nine years.”
“In contrast, we are more optimistic on prospects for US stocks. The US economy is growing comfortably above its long-term trend, monetary policy remains supportive and bank lending standards are at their loosest on record. These are some of the encouraging signs that prompt us to upgrade our stance to neutral from underweight.”
“The euro zone has offered positive surprises. Online indicators show that mobility is back above pre-pandemic levels, suggesting Europeans have learned to live with Covid. Our analysis shows strong upward earning revisions among European companies as economies open.”
“Concerns about slowing growth and a resurgence in Covid infections have spurred a strong rally in global bonds. We see Chinese bonds, with low volatility and strong yields of 2.9 per cent, as an attractive opportunity.”
“We maintain our neutral stance on US Treasuries. We are also neutral in all other major government and corporate bond markets, apart from Swiss bonds and US high yield, where we are underweight.”
“In currency markets, we maintain our neutral position across all major currencies except sterling, which we are underweight.”
“We expect the UK to be the first among developed economies to have an inverted yield curve in this economic cycle – usually a warning sign for the economy.”
“Global bonds were down 0.3 per cent as investors looked for clues on future central bank policy. US Treasuries finished the month marginally lower, giving up earlier gains after Powell’s comments.”
“The dollar versus a basket of currencies is just off its highest levels since last November. Activity in the world’s largest economy remains strong, well above trend levels.”
