Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chinese technology crackdown and the necessity of cyber security
Peter Garnry
Chief Investment Strategist
Summary: Only two equity theme baskets did better than the MSCI World Index highlighting the trouble many growth pockets have experienced in July despite falling interest rates. Cyber security was the best-performing basket up 5.1% driven by strong demand and positive news sentiment with the Biden administration signing an executive order on cyber security. The worst-performing basket was our China Consumer & Technology basket down 11.9% driven by a crackdown on its for-profit education industry and wider technology industry, as the country wants to ease inequality and steer the country towards other technologies within renewable energy and semiconductors.
July was a bad month for our equity theme baskets with all baskets performing worse than the MSCI World expect cyber security and battery showing that popular themes were avoided in July over concerns of lower growth related to the Covid-19 Delta variant. It is a bit unusual is that the declines across many of our growth baskets came despite a 25 basis point drop in the US 10-year yield in July which has typically lifted these pockets. It underscores that the underlying concerns about economic growth are currently weighing more than a slightly lower discount rate on cash flows.
The biggest news in July was China’s crackdown of its for-profit education system and its recent wider technology crackdown aiming at improving competition, limit misuse of privacy data from technology giants, and in general steering the economy away from technology platforms and towards technologies solving the environment and self-reliance in terms of semiconductors and other key technologies. China is moving away from the previous economic growth at all-costs model emulated on the US/Hong Kong success to that of Germany with a much deeper focus on high-end technology clusters working together and with more frugal values emphasising less on consumption. The new trajectory is also hitting Chinese IPOs in the US and caused a 11.9% decline in our China Consumer & Technology basket in July driven by foreign investors recalibrating their exposure to emerging markets and China.
Cyber security was the big winner in July up 5.1% driven by positive news sentiment and strong earnings momentum for the industry. Last Wednesday, Biden signed an executive order on cyber security which aims at upgrading the US on cyber security efforts and ensure the US is prepared for cyber-attacks which recently included the big Colonial Pipeline which is critical US infrastructure.
Q2 earnings look solid with little fears over commodities
The earnings season has so far been quite strong driven by mega caps beating estimates. MSCI World Q2 EPS is up 6.4% q/q and Nasdaq 100 EPS is up 7% q/q showing that rapid nominal GDP growth is flowing through to corporate earnings. Most companies are mentioning the ongoing global supply chain disruptions as hurting their business, mostly in terms of the potential, and few is worried about commodity prices except for Unilever saying they are feeling the pressure on operating margins. This might be an early warning of what to come, but for now we believe higher commodity prices and their potential negative impact on corporate earnings is a Q4 earnings season worry. As the earnings chart below shows, earnings have fully recovered and are now well above their pre Covid-19 level.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer