Coffee Break 5/10/2021


  • The Fed reiterated that employment and inflation goals were too far away to shift its monetary policy stance. The BoJ and the BoE maintained rates unchanged but the latter decided to slow down the pace of its purchases.
  • Daily European vaccination rates overtook the US for the first time. Lifting EU health restrictions should be the next step, likely fueling the so-called “reopening trade”.
  • In China, April data continues to be strong, showing the economic recovery is broadening and gaining strength. The trade surplus surged to $42.9bn, considerably above consensus.
  • Inflation rate in Turkey continued to rise, reaching 17.1% in April. The CBT kept its policy rate at 19% which should help reduce inflation in the medium term.



  • Markets will have to digest the shockingly weak April US job report. With net payroll gains of 266k and a slight increase in unemployment to 6.1%, the release was weaker than expected.
  • Rising geopolitical tensions will drive focus after China suspended all economic dialogue with Australia. This follows Europe’s decision to pause ratification of the EU-China investment deal.
  • On the data front, the most important ones will likely be the April CPI release in the US. However, markets will watch out for the producer prices, retail sales and industrial production figures.
  • Investors will monitor market sentiment as the Fed warned that asset valuations have become high relative to expected cash flows: "In this setting, asset prices may be vulnerable to significant declines should risk appetite fall."


  • Core scenario
    • Our scenario of a global economic rebound, followed by a genuine growth-driven recovery, is unfolding. Recent market moves have put the focus on our investment convictions. The mechanical rebound of growth shall be followed by a transition supported by central banks and governments towards a sustainable recovery. The accumulated consumer savings will likely support a COVID-19 sensitive spending rebound, igniting hereby a positive feedback loop in the economic recovery.
    • In the US, bond yields have stabilised for now but fiscal stimulus, large supply, economic recovery and vaccine rollout might support higher rates this year.
    • In Europe, our central scenario assumes a comeback to growth trend by end-2021 and an implementation of the Next Generation EU plan in H2. Economic indicators reveal a large gap to be filled between services and manufacturing, as the latter has already started to benefit from the global economic rebound. Hence, the reflation trade could well move into a next stage as external demand surges and domestic demand is set to recover.
  • Market views
    • Financial markets are undergoing a “normalisation phase” in a unique bullish macro environment. In spite of rising bond yields, it appears too early for the era of “There Is No Alternative” to be called into question.
    • Flows into equities continue from both private and institutional investors as the environment currently remains compatible with equity upside - under the condition that earnings growth does not disappoint.
    • We have exposure to recovery/re-opening related assets: Overweight equities vs. bonds, preference for ex-US to US equities, keep European and US banks, US and UK small and mid-caps, and exposure to commodities, GBP and NOK.
    • Simultaneously, our core portfolio keeps the most resilient themes and countries.
  • Risks
    • The duel virus vs vaccine. Vaccinations have the upper hand currently, but the appearance of new variants and the transition towards an endemic virus will raise new questions.
    • Uncontrolled rise in bond yields. For the moment, central banks lack an exit plan from super-low interest rates. While bond yields have stabilised for now, inflation expectations could still point to fears from a demand shock and overheating growth.
    • Geopolitical tensions. Revived tensions between China, and/or Russia, and the US can no longer be excluded, especially since the US has recently sanctioned Russia.
    • Political uncertainty: The social divide is widening between losers and winners of the health crisis and several countries have elections coming up in the next 12 months starting with Germany which will elect a new Parliament in September.


Financial markets are in an unique bullish macroeconomic environment as the “normalisation phase” is under way. In that context, on the fixed income side, bond yields have recently stabilised but should continue to rise this year (both real and nominal). Accordingly, we remain underweight government bonds. On the equity side, the transition has cleared up some uncertainties causing a decline in volatility, while sectorial rotation towards value and cyclical sectors is still at play. Hence, we remain overall overweight equities and our strategy is geared towards reflation trades and long-term winning sectors. We expect that commodity prices should benefit from the catch-up in demand. Recently, we took profit on our German equity tilt as transition towards the post-Merkel era looks uncertain. We also increased protections due to rising risks related to new cases of COVID-19 and geopolitical tensions.



  • 2021 is a recovery year and we anticipate a strong profit rebound. We still prefer equities over bonds. We prefer equities over bonds in this context.
    • On the equity side, the unique bullish macroeconomic environment has cleared up some uncertainties causing a decline in volatility, while sectorial rotation towards value and cyclical sectors is still at play. Hence, our strategy is geared towards reflation trades and long-term winning sectors. Our multi-asset investments can be summarized as follows:
      1. We have exposure to assets related to the post-COVID rebound/recovery
        Overweight equities vs. bonds, preference for ex-US equities.
        Underweight government bonds, keeping a short duration. We focus on the source of the highest carry, i.e. emerging debt. We stay neutral US and European investment grade credit. Recently, we took profit on our relative trade on transatlantic sovereign spreads.
        We have an exposure to rising commodity prices, via a basket that includes currencies, such as the AUD, the CAD and the NOK and we remain long GBP.
      1. Positive stance on Small caps
        Current context is still supportive for ongoing rotation towards stocks geared to the recovery, a steepening of the yield curve and rising commodity prices.
        We are buying small and mid-caps in the US, the UK and Latin America.
      1. Positive stance on Global Banks
        We took partial profit after the strong rally on EMU banks and slightly decreased our global overweight exposure to the banking sector.
        We keep an overweight stance on US banks, which could benefit from the yield curve steepening: We expect US10Y yields to hit 2% in the next 12 months
      1. Positive stance on long term growth thematics
        Inclusion of secular megatrends to profit from long-term sustainable growth. The pandemic revealed that they are helpful in building a resilient portfolio. Environmental solutions, digitization and healthcare are our strongest thematic convictions.
        Oncology and Biotech sectors reveal high growth potential.
        Keep exposure to Tech and Innovation themes.
        Purchase of consumer staples names (Food & Beverage sector).

Our positioning