Coffee Break

Last week in a nutshell

• Geopolitics came back to the forefront with an escalation between the US and Iran, casting doubts on the ongoing ceasefire and Hormuz transit.
• Oil prices spiked again, nearing $80/barrel before relaxing slightly.
• The AI-trade got some renewed interest after SK Hynix’s listing in New York, and Micron’s capex plans.
• PMIs in the US remained solid, confirming a strong growth environment
• Inflation data in China were mixed, with PPI rising in line with expectations, but consumer inflation dropping more than expected to 1%.

Investment convictions

Core scenario

• Overweight Equities: With negotiations ongoing, the Strait of Hormuz reopening, and a ceasefire in place and lengthened, there’s additional room for markets to relax.
• Macro conditions set to improve. Macro conditions are already supportive in the US and could improve in the rest of the world as energy prices decline. US growth continued to rest on private domestic demand, with investment – especially AI-related capex – playing a larger role than consumption.
• Focusing on earnings. Markets will soon shift attention back to the earnings season as corporate profit growth remains the most powerful market driver so far in 2026.
• Monetary policy divergence. Fed Chair Kevin Warsh delivered a hawkish hold at his first FOMC and ruled out rate cuts in 2026. The ECB is managing inflation expectations, signalling potential ongoing rate hikes. Finally, the Bank of Japan and the Reserve Bank of Australia remain in tightening mode.

Risks

• Geopolitical fragmentation. The US–China rivalry remains entrenched, while energy supply and global trade patterns continue to shift. In the meantime, the situation in Iran remains very fragile.
• Fed dilemma. A strong economy and a divided FOMC could delay easing, risking a pause in liquidity support. Kevin Warsh will have to build a new policy consensus.
• Fiscal credibility. Rising issuance and political noise could test bond market confidence and trigger volatility in yields.

Cross asset strategy

• We are slight overweight on equities via regional preferences of Emerging markets and Japan, while recently downgrading the US to Neutral.
• Regional allocation:
  • Neutral stance on the United States. This tactical decision reflects our neutral stance on the US Technology sector. An expected lack of catalysts for the sector by the end of July (Q2 earnings season) have led us to downgrade the Technology sector. Tech-sensitive exposures carry roughly half of the weight in the broad US market.
  • Slight overweight Japan. Supportive government initiatives and a relatively prudent BoJ provide a favourable backdrop, while Japan offers concentrated exposure to AI winners across semiconductors, data centre infrastructure and automation technologies. Its world-leading franchises in robotics, factory automation and industrial equipment should position the market to benefit from the next phase of AI-driven productivity growth.
  • Neutral Europe. The region could benefit from easing energy prices but sector composition appears less exposed to dominant market themes. Fiscal spending in Germany is kicking into full gear.
  • Slight overweight Emerging markets. A selective approach within the region is warranted, but the overall strong exposure to Tech is a supportive factor. We prefer Korea, Taiwan, and China Tech to India. Valuation is attractive as the relative 12m forward PE of the MSCI Emerging Markets index reveals a significant discount to the MSCI World index.
• Factor and sector allocation:
  • We favour sectors that benefit from investment cycles, either in AI or from government spending.
  • We remain constructive on the healthcare sector and keep exposure to EU and US mid-caps and industrial stocks as they are somewhat shielded from expansionary budgets and planned deregulation.
• Government bonds:
  • We are long Core European Bonds duration. The Iran war has led to an inflation-driven repricing, as energy and supply disruptions lift inflation expectations. As consequence, ECB central bank easing expectations from the start of the year have been reversed and gone too far in our view. We focus on high quality, core-European AAA-rated sovereign bonds, which enjoy both fiscal and central bank credibility.
  • We’re slightly short US Treasuries. Strong growth dynamics, AI Capex and an inflationary impulse, as well as deficit concerns, put upward pressure on US rates.
• Credit:
  • Spread widening in European Investment Grade has been very limited, insufficient to create a broad valuation opportunity while macro uncertainty remains elevated. Investment Grade fundamentals remain solid, but sensitivity to higher rates warrants a neutral positioning. For the moment, we favour maintaining selectivity rather than holding an overweight position.
  • Neutral on Investment Grade credit in both the US and Europe. High Yield technicals are deteriorating amid outflows and increasing supply. Within High Yield we’re neutral on Europe and negative on the US.
  • We are positive on Emerging market debt via Sovereign Local Currency debt as the spread tightening trend is unfolding again and there is some leeway to see further compression ahead. Also, EM FX appears best placed to benefit from renewed potential USD weakness. In addition, the current Yield-to-Maturity of ca. 7% represents an attractive carry for this income-diversifier position.
• Alternatives:
  • We remain constructive on gold over the long term.
  • We hold precious and strategic metals, alternatives and market-neutral strategies for portfolio stability and diversification.
• Currencies:
  • The current market regime favours currencies linked to commodities such as precious metals and oil. Therefore, we have long positions in AUD, NOK and BRL.
  • There is an increased potential of a better relationship with the EU for Hungary which could lead to more stable policies and therefore a meaningful reduction of risk for foreign investors, leading us to hold a position in the Hungarian Forint.
  • We remain slightly underweight on the USD but have reduced this underweight materially on renewed geopolitical escalation.
  • We are also long JPY.

Our Positioning

Our positioning remains constructive, with an overweight in equities through the Emerging Markets and Japan, where earnings momentum remains strongest. Overall, the macro backdrop remains supportive, but market leadership broadened as investors rotated away from crowded AI/chip trades into other market areas. In fixed income, we favour Emerging Market debt and are constructive on high quality, core European duration. Within credit, we prefer European Investment Grade over High Yield, where risk premia remain limited. We maintain a preference for the JPY which remains historically extremely undervalued compared to the USD, selected emerging-market currencies and keep commodity-linked currencies such as AUD, NOK and BRL. Finally, gold, strategic metals and alternative strategies continue to play an important diversification role in a world of supply constraints, policy divergence and real-rate volatility.