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Monthly strategy From Yieldfall to Yieldrise ?

Monthly strategy From Yieldfall to Yieldrise ?. July 2013.

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Monthly strategy From Yieldfall to Yieldrise ?

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  1. Monthly strategy From Yieldfall to Yieldrise ? July 2013

  2. In the US, monetary expectations are being quickly reset. Bond markets have started to factor in the view that, starting with a tapering of asset purchases, the extraordinary measures taken by the Fed to support asset classes may be nearing to an end. While the near term tactical reaction of the markets may be negative to this news, on a longer term basis we feel that equities could continue to re-rate.

  3. Traditionally, periods of the start of a normalisation of US monetary policy over the last 30 years have typically led to US stock markets pulling back a bit, and European markets trending sideways. Despite the recent hawkish FOMC meeting, the full monetary exit is likely to be gradual and measured

  4. We feel that expectations remain very low for the euro area economy. The view that euro crisis is not over seems to be very still very widespread. Our view remains that a combination of reduced imbalances (twin deficit), better institutional frameworks (OMT, Banking union..) and better supply/demand conditions in bond markets has significantly reduced tail risks in Europe. On the growth front, the green shoots of recovery look to be emerging. Business confidence seems to be staging a U-Shaped recovery. We find signs of recovery in bank lending as well.

  5. European equities should be able to weather a gradual unwind in fixed income yields given that the ERP is near all time highs. An end to the bond bull market could see low beta sectors underperform

  6. The argument for buying European equities is a simple one: an opportunity to buy undervalued assets, rated on bottom of the earnings cycle, with sufficient structural change at the macro level to provide a medium-term boost to profit margins, that in turn will drive highly operationally geared earnings growth as the economic recovery progressively takes hold. The cyclically adjusted P/E provide a powerful illustration of the latent value in European equity markets

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