Coffee Break

Last week in a nutshell

• Markets were whipsawed by a sharp reversal in AI trade. Semiconductors sold off on concerns over the financing and returns of AI investment, before Microsoft’s and Samsung’s result sparked a rebound.
• Megacap earnings were mixed but broadly resilient and strong, yet with concerns on the size of Capex remaining. Microsoft, however, showed that a translation of capex into earnings is possible.
• The Fed kept interest rates unchanged, but Chair Warsh’s dovish comments were followed by a steeper yield curve, with front-end yields falling, long-end yields rising, inflation expectations increasing and the dollar weakening.
• US economic data sent a mixed signal, with headline growth slowing while underlying domestic demand remained resilient and inflation eased only gradually.

Investment convictions

Core scenario

• Slight overweight equities: We remain constructive for global equities, but have become more selective after recently downgrading the US (and US tech).
• Macro conditions set to improve, but fragile. Macro conditions are already supportive in the US and could improve in the rest of the world if energy prices decline. US growth continued to rest on private domestic demand, with investment – especially AI-related capex – playing a larger role than consumption. However, renewed tensions in Iran pose a risk to our scenario. A swift resolution is paramount for our core scenario to hold.
• Focusing on earnings. Markets are shifting attention back to the earnings season as corporate profit growth and CAPEX revisions from hyperscalers remains the most powerful market driver so far in 2026.
• Monetary policy divergence. The Fed remains on hold while 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 even though they take a gradual approach.

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 and volatile.
• 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 United States. This tactical decision reflects our neutral stance on the US Technology sector. A lack of catalysts for the sector by the end of the summer (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 for risky assets. Also, 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 - though volatile - 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 themes 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 and NOK.
  • 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 a slight overweight in equities through Emerging Markets and Japan, where earnings momentum remains very strong. 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 Japanese yen as a hedge, which also remains historically extremely undervalued compared to the US dollar, selected emerging-market currencies and keep commodity-linked currencies such as AUD and NOK. 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.