Multi-Asset Solutions Weekly Strategy Report
- The tug-of-war between trade tensions and easy monetary policy has been evenly balanced so far this year. However, the balance might be shifting as policy shows signs of fatigue and trade war concerns persist despite a Trump Administration decision to delay the most recent round of tariffs on Chinese goods.
- Bond markets are not merely pricing in a benevolent Federal Reserve prepared to offer a few “insurance” cuts; they’re also discounting some risk of a full scale rate cutting cycle. It will be increasingly difficult to cast any greater urgency in easing as anything other than fears over growth and a shift towards a full scale cutting cycle.
- An uptick in recession risk makes us more cautious on overall risk levels, especially in our credit portfolios. Even though U.S. high yield is still a preferred asset class relative to equities, we are increasingly aware of building liquidity and downside risks.
EXHIBIT 1: Beta of high yield excess returns to S&P 500 returns
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