Our multi-asset views for April 2019
Our multi-asset views for April 2019
We have upgraded our view following changes in central bank policy stances, together with further confirmation of improvement in earnings revision momentum.
Our neutral view remains unchanged as we still need rate sensitivity to balance risks in the portfolio.
We remain neutral, driven by a flat macroeconomic backdrop that shows few signs of growth, yet provides sufficient resilience at this stage to avoid a full recession.
Credit continues to rally, following a strong start to the year. Year to date spread tightening 1 has been aided by an increasingly dovish stance by global central banks.
1. This refers to credit spreads, being the difference in yield between two different bonds that are the same in all aspects except for the credit rating.↩
Earnings revisions have stabilised and the rally has so far been under-owned, suggesting that the US equity market has further upside potential.
Cheap European valuations are warranted in light of political and cyclical challenges in the region. Economic activity indicators are a cause for concern.
A stronger pound will provide a headwind for the UK market in the near term, specifically for large cap stocks.
We retain a neutral view while a lack of confidence continues to undermine stronger fundamentals.
A weak domestic environment in Australia has a significant impact on the index and leaves us neutral, despite having a more positive view on Singapore and Hong Kong.
We are seeing noticeable recoveries in momentum signals both on price and earnings revisions, particularly in China.
While looser policy remains supportive, the US 10-year has rallied with valuations pushed to extreme historical levels.
We expect ongoing Brexit-related volatility to provide trading opportunities, but from a longer-term perspective we believe gilts are still rich compared to other markets.
We have moved to a neutral stance as we have taken profits following the fall in yields. We await better levels to re-establish positions.
The open-ended policy of yield curve control from the Bank of Japan will continue to put a ceiling on Japanese government bond yields in the medium term.
US inflation linked
We remain positive on US break-evens, which offer value against rising wages/inflation.
Emerging markets local
Despite a stable outlook, we expect future returns to be driven only by short dated bonds.
Investment grade (IG)2 corporate bonds
Deteriorating fundamentals alongside elevated valuations lead us to maintain our negative outlook for US investment grade.
The European credit backdrop is healthier, for now, with continued low interest rates and debt affordability for corporates looking set to improve even further.
Emerging markets USD
Accommodative policy in the US has removed the headwind to emerging market debt in the near term; however, unappealing valuations keep us neutral.
2. Investment grade bonds - The highest quality bonds as assessed by a credit ratings agency. To be deemed investment grade, a bond must have a credit rating of at least BBB (Standard& Poor's) or Baa3 (Moody's).↩
High yield3 bonds
While comparatively expensive to history, US high yield spreads are stable, and strong interest coverage is supportive. Valuations drive our neutral score.
European high yield is trading at attractive levels relative both to history and fundamentals.
3. High yield bond - A speculative bond with a credit rating below investment grade. Generally, the higher the risk of default by the bond issuer, the greater the interest or coupon.↩
Dampened global demand and tapered US production increases continue to offset a combination of OPEC+ cuts and sanctions applied to Venezuela.
Recession risk remains elevated, however, there is still an inherent possibility of a stronger US dollar as a result of US economic outperformance relative to the rest of the world.
Industrial metals have traded broadly flat since being swept along in the January rally and there are no meaningful signs that this will change.
We feel the market is sufficiently well equipped on the supply side to deal with possible shocks from an El Niño weather event this summer or a US-China trade resolution.
We have a positive bias on the outlook for the dollar, and like it as a hedge against the risk of further economic weakness.
Upgraded, based on evident reluctance for a ‘no-deal’ Brexit, which should help sustain momentum in the labour market. We expect confidence to bounce back.
We remain neutral with the ECB’s ultra-dovish stance, the uncertainty around Italian politics and the wait for a stabilisation in European growth still weighing on the euro.
Japanese yen ¥
Dovish comments from the Bank of Japan keep our view neutral. We may look to upgrade the JPY view if we believe the risk of global recession has risen.
Swiss franc ₣
We maintain neutral, reflecting the balance between weak fundamentals and the currency’s safe haven status.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.