04 Aug Viewpoints August 2021
REDUCING SENSITIVITIES
A mid-year slowdown has not yet appeared in the global economy or equity markets. But we have seen a notable drop in interest rates, which is curious in the face of hotter than-expected inflation reports. As shown below, rates have fallen steadily since a peak at the end of the first
quarter, for reasons we think are as much technical as fundamental. Risk markets have handled the decline reasonably well, but it has led to a return of growth stock outperformance. With U.S. interest rates declining to the bottom end of our expected range, we did reduce interest
rate sensitivity in our global policy model this month by reducing our investment grade fixed income allocation. Meanwhile, we also modestly reduced our emerging market equity exposure, partly due to the high-profile changes in economic and regulatory policy in China.
Inflation data is so varied that one can find a report to support any outlook. Recent U.S. inflation reports have been much hotter than expected, but Europe and China reports been much more subdued. Read the full Viewpoints August 2021 newsletter.
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