Highlights:

• Progress on disinflation and easing fears of escalation in the Middle East have fueled a broad-based market rally in November.
• Amid the siren calls from lower yields, however, mind the still difficult growth outlook. We expect the lagged fallout from the Fed’s tightening to send the US into stagnation, while Europe will recover only sluggishly from a moderate recession.
• The decline in yields still has legs, albeit more moderately so. With hopes of early Fed and ECB pivot already advanced, central banks will need to keep financial conditions from easing too fast.
• Risk assets discount quite some optimism and cyclical concerns will overshadow more strongly the disinflationary relief. We retain some caution on Equities and High Yield (HY) Credit near term, favouring Investment Grade (IG) Credit and longer-dated Govies. Amid a somewhat brighter outlook for risk assets, we trim the size of active positions.

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