Coffee Break

Last week in a nutshell

• The longest government shutdown in US history came to an end after 43 days.
• Fed speakers drove the expectations for a December rate cut further down to 50% vs. 70% at the start of the month.
• In France, the National Assembly passed an amendment on the suspension of the pension reform.
• Following a meeting between US president Trump and a group of Swiss business representatives earlier this month, the two countries have “essentially” reached a trade agreement.

Investment convictions

Core scenario

• Visibility Restored. The fog is lifting. Global markets enter November with better visibility than at any point this year – growth stronger than anticipated, inflation lower than expected, and policy broadly supportive. After weeks of patchy data and hesitant sentiment, confidence is returning as activity holds up and volatility subsides.
• Fed’s gradualism. The Federal Reserve, after back-to-back cuts in September and October, is entering a new phase of conditional easing. The October data blackout has created a paradox: Less information has made the Fed more cautious. Policy divergence is emerging, with the ECB “in a good place” and the Bank of Japan preparing to tighten – a normalisation rather than a threat.
• Financial conditions improve. Liquidity is ample, credit stable, and real yields remain positive but manageable. Growth around 2% in the US and 1% in Europe supports our soft-landing scenario. US inflation is set to peak near 3.75% before easing into 2026.
• Regional balance. Europe benefits from fiscal support and improving PMIs above 50, while China’s trade truce buys time for adjustment. Emerging Markets enjoy renewed inflows, high carry, and a weaker dollar. Divergence, once feared, now signals equilibrium.
• Valuations high but justified. Equities trade at premium multiples, yet balance sheets are strong and earnings momentum positive. Markets are paying up for visibility, not for exuberance.

Risks

• Fed hesitation. A prolonged data blackout and divided FOMC could delay further easing, risking an untimely pause in liquidity support.
• Fiscal credibility. Rising issuance and political noise could test bond market confidence and trigger volatility in long-dated yields.
• European politics. Cohesion risks persist as France remains a fiscal flashpoint; political noise could weigh temporarily on sentiment.
• Geopolitical fragmentation. The US–China rivalry remains entrenched, while energy supply and global trade patterns continue to shift.

Cross asset strategy

• We hold a constructive stance on global equities over the medium-term, but have tactically trimmed the portfolio beta:
  • Our overall positioning remains Overweight, led by a positive view on all regions.
• Regional allocation:
  • United States: Slight Overweight: The Fed’s dovish pivot in September has set the stage for further easing. US tech remains a core conviction amid resilient growth.
  • Japan: Slight Overweight: Trade visibility and tariff relief continue to support cyclical sectors, especially exporters. The election of Sanae Takaichi is symbolizing structural reform and diversity in leadership and is therefore seen as an important step to eliminate the discount on Japanese equities.
  • Europe: Slight Overweight: Tariff relief offers support, and Germany’s expansionary budget has been approved. The ECB is on hold but retains flexibility.
  • Emerging Markets: Slight Overweight: Emerging equities benefit from a US -China trade truce until next year, a softer USD and improved trade visibility. EM debt remains slightly overweighed, supported by attractive yields and lower funding costs.
• Factor and sector allocation:
  • We favour a barbell approach with resilient themes such as Technology & AI, and Healthcare which remains supported as most of the bad news now appears discounted in the prices.
  • We keep exposure to German and US small- and mid-caps as they are still likely to benefit from expansionary budgets and lower financing costs under a dovish Fed.
• Government bonds:
  • We are constructive on core European duration, where stable ECB policy and low inflation expectations anchor yields.
  • US Treasuries remain Neutral, with tariff-driven inflation and a Fed reshape adding complexity.
• Credit:
  • We prefer European Investment Grade credit, where spreads are attractive versus US credit.
  • High Yield has a more limited risk/reward given tight spreads and low embedded risk premia.
  • Emerging Market debt is an Overweight on attractive yields, better trade visibility, and dovish Fed support.
• Alternatives:
  • Gold remains overweight as a hedge against geopolitical risks, real rate volatility, and a weaker USD; supported by strong central bank buying and retail flows. We have taken some profits following the parabolic rise in recent weeks.
  • We acknowledge that the US dollar remains the key pivot for emerging markets and precious metals.
  • We retain allocations to alternative strategies for portfolio stability and diversification.
• Currencies:
  • We remain underweight USD, as Fed easing and political pressure weigh on the currency.
  • We favour defensive currencies such as the Japanese yen and hold selective long positions in EM currencies with strong fundamentals.

Our Positioning

Global markets have entered November with renewed clarity as the record-long US government shutdown has come to an end – growth is stronger than anticipated, inflation lower than expected, and liquidity conditions are improving. Doubts about the Fed’s cautious easing, expensive valuations in the AI ecosystem and an ongoing market rally during the Q3 earnings season prompted us to tactically trim the portfolio beta while maintaining a constructive outlook for equities. We remain overweight equities, with a balanced but constructive allocation across all regions, notably Europe and Emerging Markets, which combine cyclical catch-up with structural support. We like resilient global themes such as Technology & AI and Healthcare. Closer to us, we emphasise German mid-caps as a catch-up trade, fuelled by fiscal stimulus. On the fixed income side, our strategy includes Emerging Market debt, supported by attractive yields, tariff relief, and improved investor flows. We also remain constructive on core-European duration while in credit we continue to prefer European Investment Grade over High Yield.