Looking ahead to H2: Will goldilocks last?

02 Jul 2019


  • ‘Fragile goldilocks’ firming up – We continue to envisage ‘not too hot and not too cold’ economic conditions in our base case scenario, but clearly, there are risks that could destabilise this sweet spot.
  • Macro data – softer, but stabilising – Since the Q4 soft patch, the macroeconomic backdrop has stabilised. Combined with low inflation, softer, but stable growth should be enough for ‘goldilocks’ to persist. US domestic data have held up well.
  • Central banks – back in full swing – Recent weeks have seen several flashpoints, with monetary policy by the US Federal Reserve and the ECB as well as in China edging more into dovish territory. All else equal, this should support risk assets, depress real rates and revive inflation breakeven rates.
  • Trade-war risks – Likely continue to oscillate around a medium to long-term trend of de-globalisation. Short term, the trade truce between the US and China at the G20 meeting is supportive.

Asset allocation

  • Modus operandi for stocks: buy dips – We believe the current environment is conducive to buying dips, but also selling excessive rallies. Broadly speaking, we expect equities to trade within a volatile, slightly upward tilted range. We bought recent dips in developed market stocks.
  • Search for yield makes carry assets attractive – A further compression in real rates should support high-yielding assets. We remain long emerging market hard currency debt and are looking for tactical entry points in other carry/high-yield assets.
  • Central banks spur reflation hopes – We expect reflation hopes on the back of recent central bank action to drive US inflation break-evens higher, at least in the short term.
  • Building robust portfolios – We are monitoring several risks that could destabilise the current status quo. As such, we also still believe that building robust portfolios is absolutely key and we hold several trades with asymmetries/hedges.