Coffee Break 5/17/2021


  • US CPI rose to 4.2% YoY in April, fuelled by booming used car prices, travel and supply shocks. This bigger-than-expected jump caused the sharpest one-day drop in US equities since February.
  • In China, the PBoC released its Q1 monetary policy report which reiterated its plan to keep liquidity reasonably ample, with TSF growth in line with nominal GDP growth.
  • As its emergency bond purchase scheme ends next year, the ECB made clear that it would continue to provide support via the existing APP, negative interest rates and bank refinancing operations.
  • Tesla revealed that it was rejecting plans to accept bitcoin payment for cars, realising it was eco-unfriendly, which caused a significant sell-off in crypto-currencies.



  • Inflation talk will remain in the spotlight after the Fed said it would “not overreact to temporary overshoots of inflation," despite the "unexpectedly high" inflation report.
  • In terms of data, major countries will release their flash PMIs for May and their inflation figures. All eyes will be on whether the recent strong momentum can be sustained through the rest of Q2.
  • While initial claims continue to decline in the US, investors will try to gauge the impact of recent changes in the Federal pandemic programmes in 12 states on labour supply.
  • Regarding the coronavirus pandemic, vaccination ramp-up in Asia will drive focus as China is now vaccinating 0.64% of its population each day (vs 0.65% in the US). India is still lagging in this respect.


  • 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 in an unique bullish macroeconomic environment but have recently shown a lack of leadership.
    • The next move will be determined by the direction of rates, both nominal and real, which makes credibility of central banks essential to anchor inflation expectations.
    • A more hawkish pricing for central bank policy impacts equities negatively but the sensitivity to revisions in the growth momentum are even more important. Therefore, we have exposure to investment themes which benefit from both accelerating growth and rising bond yields.
    • 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.


Despite showing a recent lack of leadership, financial markets remain in an unique bullish macroeconomic environment as the normalisation phase from rebound to recovery is under way. In that context, on the fixed income side, bond yields should continue to rise this year (both real and nominal). Accordingly, we remain underweight government bonds. On the equity side, valuations are well above historical averages and cash remains available to invest. Also the “FOMO” trend still boost investors to buy back small corrections. 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. We keep protections due to rising risks related to new cases of COVID-19 and geopolitical tensions.



  • 2021 is a recovery year which will positively carry over into 2022 and we anticipate a strong profit rebound. 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