SUMARY

·        A more challenging balance between growth and monetary policy

o   Our ‘fragile goldilocks’ base case assumes that central banks can offset the ongoing growth slowdown

o   That assumption is now more tenuous in Europe, but still holds in the US

·        Trade tensions and central bank policy resolve are key worries

o   Trade tensions continue to be the main source of a negative shock to growth and most major economies, including the US, are feeling it

o   Falling inflation expectations are testing policymakers’ resolve

·        Resilience and fiscal and monetary policy room in the US

o   The US has a better chance of remaining in ‘goldilocks’ mode than Europe for two key reasons:

§  It has more room for monetary and fiscal policy easing

§  It is generally more resilient to external shocks

·        Less room to manoeuvre in the Eurozone

o   Investors are losing confidence in the fire-power of eurozone policymakers

o   So far, hints of fiscal stimulus have not been enough to reverse the sharp fall in core EMU bond yields

ASSET ALLOCATION

·        Bought the dip in US equities

o   We went long US equities tactically in line with our approach of buying dips so long as moderate growth and policy stimulus support a ‘fragile goldilocks’

o   This is still the case in the US where company earnings have been healthy, the economy has been robust, and there are ample policy levers

o   Our market temperature and technical indicators were also supportive

·        Long carry assets

o   The ‘search for yield’ environment is still in place given the global monetary easing moves

o   We remain long emerging market hard currency debt.

·        A focus on robust portfolios

o   Aside from our core views, we continue to focus on building robust portfolios by holding trades that would benefit in more extreme scenarios such as a deeper slowdown or a revival of inflation

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