Weaker macro data and persistent political risks have kept risk aversion high, especially at the expense of equity and corporate bonds.
Market volatility will not stop the Fed and the European Central Bank (ECB) in their plans to reduce monetary stimulus. However, the tone of communication may soften, reassuring investors amid several political risks (trade war, Brexit, Italian budget) they still face before the end of the year.
However, domestic demand in the US and the Euro Area remains strong, and Emerging Markets are proving overall resilient. Therefore, while risks have risen, a deeper global slowdown is not around the corner.
Market correction looks exaggerated and can provide investment opportunities. We then extend a tilt towards credit and keep a small overweight in equities.