Mind the gap(s)

In breve

As acute banking woes moved to the back burner and US president Biden and House leader McCarthy struck a lastminute deal on the debt ceiling (with final Congress vote still pending at the time of writing), markets were headed to end May on a resilient note.

Highlights:

  • A prospective last-minute deal on the US debt ceiling, resilient US activity and an AI boost to IT chip producers have helped risk assets to digest rising yields well in May.
  • But mind the various gaps that are emerging. Pent-up demand in services is deeply overshadowed by mounting trouble in manufacturing. Equity and HY Credit resilience contrasts strong signs of a looming US recession, markedly higher real yields and evidence of a credit crunch.
  • We stick to a prudent tactical tilt in our portfolios, moderately underweighting (UW) Equities and HY. We favour the carry from IG Credit and Government Bonds while avoiding unhedged USD exposure.

 

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Market Perspectives ǀ Mind the gap(s)
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