Coffee Break 8/23/2021



  • Markets started digesting the fall of Kabul. The short term economic implications might be a flow of Afghan refugees whereas the long-term implications are less clear for now.
  • The FOMC minutes confirmed that tapering is looming in the coming months. During last week’s rise in volatility, Fed’s James Bullard estimated that "taper is mostly priced into markets at this point”.
  • In the US, main hard data releases showed a mixed bag as retail sales fell by a more-than-expected 1.1%, while industrial production rebounded by 0.9%, well above consensus.
  • In the UK, an unexpected fall in retail sales (-2.5%), the most since January, indicated that a large part of the re-opening boom might already have peaked as sales were down in nearly all sectors.
  • In Canada, PM Justin Trudeau announced early election on September 20th, betting that the electorate will reward his handling of the COVID-19 pandemic and vaccine rollout.



  • Investor focus will turn to the Federal Reserve Symposium in Jackson Hole. Numerous policymakers including Fed Chair Jerome Powell are set to discuss economic and monetary policy.
  • The spread of the delta variant has raised fears about the economic outlook as the vaccination coverage appears uneven, including in the US. The release of flash PMIs might show of how that’s affecting businesses.
  • In Germany, the Ifo Business Climate indicator will be released, roughly one month ahead of the general election on September 26th.
  • US fiscal policy might continue to drive concerns after two moderate Democratic senators have doubted the achievability of the recent bipartisan bill.


  • Core scenario
    • The economic recovery should continue in 2022 with continued fiscal support and prudent central banks. Developed countries have peaked on the pace of vaccination, economic indicators, liquidity, fiscal support and are entering the transition phase to still strong but more differentiated economic growth.
    • The COVID-19 crisis may have little effect on the long-term growth potential of economies and is even pushing for accelerated productivity gains. Growth will perhaps be different with less globalization and more green and equitable growth on the positive side, which could also mean a decrease in margins for some companies.
    • The risk reward seems less attractive for the next few weeks until a clearer and more positive direction is found. The delta variant may pose a risk to growth.
    • We believe that this context remains positive for ex-US equities, value stocks and assets (banks) and should lead to higher yields.
    • In the US, more spending and more taxes are expected. The former could support higher yields, while a coming tapering should also be announced in the coming months.
    • 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 still reveal a gap to be filled between services and manufacturing, with the latter starting to incorporate the global economic rebound.
    • In emerging markets, we assume that Latin America should further benefit from the catch up in the reopening trade. On the long run, China should benefit from growing domestic demand.
  • Market views
    • Central banks' communication and the pace of interest rate increases will determine the performance and volatility of the financial markets in the second half of the year.
    • Kept under pressure by the Fed, US real rates are once again close to their lows and do not reflect the growth path expected in the coming years.
    • Over the past year, markets have well integrated the stage of the strong “mechanical” rebound after the pandemic. We may now expect positive but lower returns.
    • We are sticking to our positioning that favours non-US equities and we keep hedges against higher yields and inflation. We are buying European and US banks, US small and mid-caps, and have an exposure to Emerging countries with a bias through Latin American equities and China A onshore stocks.
    • Simultaneously, our core portfolio keeps the most resilient themes and countries.
  • Risks
    • COVID-19 variants (e.g. delta) could slow down the economic recovery, although it does not seem to represent the risk of relapsing into a new health crisis as vaccination have made progress in most developed countries.
    • Uncontrolled rise in bond yields. Some US indicators are pointing to a stronger labour market. Should this materialise in the upcoming employment reports, we may see higher yields, both real and nominal.
    • Supply-side constraints. Corporates have warned about the difficulties they are having hiring and also building their inventories to meet the rebound in demand. If this takes too long, such a context could bring more price rises without higher growth, putting margins under pressure.
    • 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.
    • Regulation uncertainty in China. The current regulation tightening occurring in China needs to be monitored. While currently limited to overseas IPO and the Education sector, any spill over through tighter rules or to other sectors could have an impact on Chinese and Emerging equities.


A strong earnings season and a decline in bond yields have been a new support for equities. Simultaneously, regulatory tightening has hit Chinese big caps, leading to a negative sentiment there. From now on, China turns towards a ‘General easing, targeted tightening’ stance. Developed countries have peaked on the pace of vaccination, economic indicators, liquidity, fiscal support and are entering a more volatile and fragile transition phase to still strong but more differentiated economic growth. A renewed rise in bond yields due to higher real yields and some inflation repricing could re-emerge and the transition phase could last somewhat until a clearer direction is found. The delta variant may pose a risk to growth. In this context, we have taken some risk off the table in July and are neutral equities, with a preference for ex-US equities. We are keeping some equity derivative protections and hedges against higher yields and inflation.



We expect a more sideways phase with a possible increase in volatility before finding a clearer direction and a continuation of the reflationary environment. We are neutral equities and underweight bonds.

On the equity side, the impact of the pandemic is set to diminish and, as countries emerge from the crisis, their economies should rebound and rebuild. The COVID crisis may have little effect on the long-term growth potential of economies and is even pushing for accelerated productivity gains. Rebuilding after the pandemic implies that growth will perhaps be different, with less globalisation and more green and equitable growth, but it could also mean margin pressure for some companies. 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
    Neutral equities, underweight bonds, preference for ex-US equities especially Emerging Markets through Latin America equities and China A onshore stocks.
    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. We have a currency exposure to the NOK.
  2. Positive stance on Small caps
    Current context is supportive for ongoing rotation towards stocks geared to the recovery and a steepening of the yield curve. We have a position on small and mid-caps in the US and Latin America.
  3. Positive stance on Global Banks
    Banks in the euro zone still present a steep discount to their long term average and we are adding EMU banks. We also keep an overweight stance on US banks, which could benefit from the yield curve steepening: We expect US 10Y yields to hit 1.75% by the end of this year.
  4. 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. Tech and Innovation themes, as well as Oncology and Biotech sectors reveal high growth potential. Purchase of consumer staples in the European Food & Beverage sector.


Our positioning