BNPP AM: MAQS Asset Allocation Monthly - August 2019

Summary

 ‘Fragile goldilocks’ still in place

• The three key ‘goldilocks’ pillars (macro data, central banks, and trade war dynamics) remain supportive
• Markets have already largely priced in this sweet spot
• We continue to monitor the risk scenarios around our base case as we still see this as a ‘fragile goldilocks’

Central bank easing & market impact

• The ECB strongly hinted at upcoming stimulus,  leaving the door open for rate cuts, rate tiering and QE
• The Fed cut rates by 25bps and announced the end to its balance sheet drawdown, which we see as an ‘insurance cut’
• Easing also continues in China
• Cuts should support risk assets, depress real rates and revive inflation breakeven rates, although tactical risk/reward seems unattractive

Earnings season

• With goldilocks increasingly priced in, we are monitoring fundamental developments closely
• The current earnings season is reasonably solid, especially against a bearish consensus

Chinese easing

• We are monitoring the impact of China’s easing on the domestic economy and key trading partners
• Given the upturn in measures like the credit impulse, we are hopeful for some stabilisation in the macroeconomic backdrop in H2.

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