Election crossroads

Highlights:

• The global growth environment is stabilizing as the US economy continues to show resilience while the momentum in China and the euro area is bottoming. 
• Central banks are easing policy as inflation normalises and the risks subtly shift from inflation to the activity side. Overall, this Goldilocks environment remains mildly conducive to risk exposure.
• The elephant in the room for November, however, are the US elections. Trump’s agenda of tariffs, tax cuts and immigration curbs would prove inflationary in the US, initially sending US yields, the USD and selected US equity baskets higher, especially so if backed by a ‘red sweep’. 
• We keep a prudent allocation stance into the elections and mostly favour the carry of Credit and EM over lower-yielding euro Govies for now. But given the overall conducive macro backdrop (moderate growth, easing inflation) we are leaning towards scaling further up our pro-risk stance after Nov. 5 uncertainties recede.

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