23 september 2021


Welcome to CLEARCUT, a monthly discussion on macro and allocation


  • The delta to Delta has fallen as the global economy has learnt to live with the virus. The main growth risk now is a sharper slowdown in China.
  • Markets are too complacent with the risk of a quicker hiking cycle from the Fed, as the labour market is tight under the surface.
  • Seasonality and positioning are headwinds for the equity market in the near term, but the Chinese narrative is just that, a narrative. SPARK stays neutral in the equity allocation.
  • A rise in real interest rates through year end could support Cyclicals. Japan stands out in that regard.


Less is more_ While many investors had entered summer with a wall of worries, the past two months ended up a smooth sailing for markets. Paradoxically, the lack of clear downside risks has led to another wave of inflows into risk assets, setting up the conditions for additional vulnerability into year-end. Can Q4 2021 be a new 2018?

Falling delta_ The key macro risk that had investors worried from July was the Delta variant. With infection cases rising rapidly, the concern was both a large impact on economic activity and limited efficacy from existing vaccines. None of those turned out to be true. In fact, the fourth Covid wave looked similar to the third, with limited rises in hospitalisations and fatalities. The hit to GDP growth was also dampened by populations’ accumulated experience as well as critical thresholds reached in vaccinations. In short, the economy’s delta to Delta has fallen.

Room to grow_ In fact, the economy is not done catching up. Slack is still significant in labour markets as well as business investment, while the economic support from monetary and fiscal policies will be felt for some time. We expect GDP growth to stay well above normal levels for another 6 to 9 months. A reacceleration in business surveys should take place into year-end, as was recently the case with the September Philadelphia Fed survey. Still, a slightly different question is whether this expansion will be as positive for markets as 12 months ago. With expectations about activity now high, it has gotten way more difficult to surprise to the upside. As a result, despite our constructive take, macro should be less of a positive for markets in the coming months.