PATIENCE IS A VIRTUE
Sunny spots are rare this winter. Economic data in in Europe and China have continued to underwhelm. Key euro area indicators including PMIs, Ifo and Sentix are at multi-year lows, following a sharp contraction in industrial production in Q4.
- Underwhelming macro data and lingering political uncertainties (trade war, Brexit, US government shutdown) offered little support to global markets into the new year.
- Yet risk assets have been climbing a wall of worry since Christmas, rebounding nicely from a panic sell-off in December. More dovish central banks, Chinese policy support and hopes of a US/China trade deal are reassuring investors that policy makers will address downside risks.
- We subscribe to Fed’s Powell underlying message: patience is a virtue. We trim but retain a pro-risk allocation tilt, slightly reduce our underweight in Govies and keep an overweight in credit.