28 october 2021


Welcome to CLEARCUT, a monthly discussion on macro and allocation


  • The macro is turning more negative for markets as expectations run high and momentum is fading. China is a key source of uncertainty.
  • For the first time since the Great Financial Crisis, central banks feel allowed to embrace rate hikes wholeheartedly.
  • After the earnings season and with buybacks returning, SPARK continues to see most expected returns in equities. Get selective on stocks vulnerable to input and labour costs.
  • We reduce the underweight to duration, especially in Europe. A curve bear-flattening is the most likely going forward.


Here we go again_ The past month has been a fairly smooth ride, with most risk asset markets doing well. Many investors who had cut exposure in June had to come back in, with a familiar smell of FOMO in the air. As we enter the last months of the year, typically the most favourable in terms of seasonality, can anything derail another exceptional year of returns?

Winter pandemic_ The pandemic has receded in many parts of the world over the summer and fears are coming back that winter may be conducive to another wave of cases. As a matter of fact, it is already happening in several European countries, notably Germany. Still, we doubt that this can materially affect the outlook or market sentiment. A third vaccine shot is being rolled out to vulnerable populations while policy measures such as the Covid pass have proved their efficacy at both boosting vaccination and limiting contagion risks in public spaces. As a result, the pandemic is more of a headline risk than a fundamental risk going forward.

Not much of a trade-off_ A reasonably strong economy, high current inflation and the prospect of more structural wage-driven price pressures are the clearest case in years for policy tightening. For the first time since the Great Financial Crisis, central banks are allowed to embrace rate hikes wholeheartedly. And don’t forget that central banks like to move in herds. The turn-around at the Bank of England, which may be raising rates as early as next month, is a case in point. As usual, the ECB will probably act last. Markets are now pricing in a rate hike by end 2022 but the Bank will lean against the wind for now in our view.