Coffee Break

Last week in a nutshell

• President Trump’s State of the Union address contained few new legislative proposals, instead revisiting the Administration’s headline achievements.
• In the US, consumer confidence surprised to the upside, while regional activity surveys sent mixed signals from Dallas to Philadelphia.
• In Europe, Germany’s Ifo index climbed to a six-month high, even as the European Commission’s Economic Sentiment index edged lower in February.
• Nvidia delivered another strong set of results, beating both revenues and guidance, yet the stock reaction remained muted.

Investment convictions

Core scenario

• Supportive macro context. Macro conditions remain supportive, but in the current context they are no longer the dominant driver of market leadership. US growth continues to rest on private domestic demand, with investment – especially AI-related capex – playing a larger role than consumption.
• Fed’s gradualism. The Federal Reserve is entering a new phase of conditional easing. Policy divergence is emerging, with the ECB “in a good place” and the Bank of Japan in tightening mode – a normalisation rather than a threat.
• Markets moving out of sync. Regions, sectors and currencies are no longer moving in lockstep. Equal-weight indices diverge from cap-weighted benchmarks. Hardware outperforms software. Asia’s semiconductor exposure behaves differently from US platform names. Emerging-market currencies strengthen even as US rates remain elevated.

Risks

• Fed reshape. A divided FOMC could delay further easing, risking a pause in liquidity support. There is a risk that tariff-related price gains together with the reversal of the downward biases in the shutdown data, could lead to some inflation increases over the coming months.
• Fiscal credibility. Rising issuance and political noise could test bond market confidence and trigger volatility in yields.
• Geopolitical fragmentation. The US–China rivalry remains entrenched, while energy supply and global trade patterns continue to shift. Also, the US intervention in Venezuela has demonstrated the current US military capabilities and enforcement willingness while tensions over Iran linger.

Cross asset strategy

• We hold a constructive stance on global equities over the medium-term:
  • Our overall positioning remains Overweight, led by a positive view on all regions.
• Regional allocation:
  • United States: Slight Overweight: Tech and AI leadership
  • Japan: Slight Overweight: Reform and fiscal spending after snap elections act as a support.
  • Europe: Slight Overweight: Resilience to tariff news and wider geopolitical uncertainties as Germany’s expansionary budget is now being put to action.
  • Emerging Markets: Slight Overweight: Cheap AI exposure, weak USD. Looming elections and commodity support from LatAm. US-China trade truce and upcoming summit.
• Factor and sector allocation:
  • We remain constructive for both Healthcare and Tech. Within the software sector, a large dispersion of business models exists, some of which are more impacted by Artificial General Intelligence than others. The whole sector has sold off indiscriminately, creating opportunities.
  • We keep exposure to European Industrials as well as German and US small- and mid-caps as they are benefitting from expansionary budgets, lower financing costs and planned deregulation.
• Government bonds:
  • We are constructive on core European duration, where stable ECB policy and low inflation expectations should anchor yields.
  • US Treasuries remain Neutral, with the upcoming Fed reshape adding complexity.
• Credit:
  • Positive on European Investment Grade credit versus US Investment Grade credit and High Yield
  • Emerging Market debt is an Overweight on attractive yields, better trade visibility, and dovish Fed support.
• Alternatives:
  • Despite a marked increase in volatility, Gold remains a key conviction as a hedge against geopolitical risks, real rate volatility, and a weaker USD; supported by strong central bank buying and investor flows.
  • We retain allocations to alternative strategies for portfolio stability and diversification
• Currencies:
  • Expectations of a softer USD are reflected in currencies linked to structural demand for commodities and capital goods. This stance is expressed through a positive view on AUD and BRL.
  • We are also long JPY and hold selective long positions in EM currencies with strong fundamentals.

Our Positioning

This week was noisy on the macro side, as US consumer confidence improved more than expected and economic confidence dipped in Europe, while US president Trump’s State of the Union address was light on new calls for Congress to act. But earnings were once again at the centre of investor attention. Nvidia delivered another strong set of results, beating on both revenues and guidance, but the stock reaction was more muted than in previous quarters, reflecting higher expectations and some positioning fatigue around AI leaders. Salesforce also reported solid figures and announced a massive buyback, an important indicator for the rest of the software sector, which has been hit hard amidst Artificial General Intelligence disruption concerns. We stay overweight equities among major markets, holding Europe for value and recovery, Japan for reform, and Emerging markets for cost-efficient access to AI and semiconductors and access to commodities. Our key themes include electrification bottlenecks – supportive of some utilities, infrastructure, and metals – alongside healthcare and biotech for idiosyncratic growth. In fixed income, duration serves as portfolio insurance amid divergent rate paths, while selective European credit and EM debt offer attractive carry. We anticipate a softer US dollar and remain constructive on metals.