Coffee Break 5/31/2021


  • In the US, initial claims for unemployment benefits fell to their lowest level since March 2020. Durable goods were held back in April due to supply constraints in the manufacturing sector.
  • In Germany, IFO business confidence rose to a higher-than-expected 2-year high, reflecting increased business sentiment after mobility restrictions started to ease.
  • Despite seven years of negotiations, Switzerland announced it would not sign the framework trade deal with the EU, partly due to a lack of domestic support.
  • The Bank of Korea maintained rates unchanged but announced it was planning an "orderly" exit from its unprecedented accommodative policy. The Bank of Mexico (Banxico) declared it was in no hurry to start raising rates.



  • Talks about tapering will continue to attract investors’ attention as senior Fed members said it would become important for the FOMC to begin discussing plans to adjust the pace of asset purchases at upcoming meetings.
  • Investors will focus on the growth outlook as the White House is set to propose a substantial $6 trillion budget plan for 2022.
  • The ECB policy meeting will provide new economic forecasts. New insights regarding the upcoming pace of bond purchases will also be scrutinised as the ECB is expected to extend its higher bond-buying pace into the summer.
  • In the UK, PM Boris Johnson will be considering imposing a carbon border tax which might be used as a protectionist tool to support British farmers.


  • 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.


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, and recently added to our short US duration. 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 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