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Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 22 April 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

Counterpoint May 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

TRADE Geopolitical tensions (ongoing)

MEDICAL European Lockdowns (ongoing)

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FISCAL EU Recovery Fund (Q3)

MACRO US/UK reopening (ongoing)

MONETARY Global central banks (ongoing)

FISCAL Biden’s infrastructure plan (H2)

MEDICAL Covid-19 vaccine (ongoing)

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MACRO Inflation and bond yields (ongoing)

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Breakeven inflation describes the difference between the nominal yield of a government bond and real yield on an inflation-linked bond of similar maturity and credit quality. If inflation averages more than the breakeven, the inflation-linked investment will outperform the government bond.

Following an increase in inflation expectations, we have closed our overweight allocation to US Treasury Inflation-Protect Securities (TIPS) relative to European government bonds. Although inflation is likely to rise further over the next few months, it’s unlikely to get out of control.

The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors. We have reduced our underweight exposure to USD investment grade credit because we expect spreads (the difference in yield) to remain tight.

Quintet portfolio

Relative value

We continue to position portfolios to capture the growth from those areas of the market that should benefit as the world economy heals

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EQUITIES
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Click an asset class to show the sub-asset classes

The asset allocation vector

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Although geopolitical risks remain, conditions around the world are more stable this year

When the coronavirus pandemic struck last year, some countries suffered more than others. Effective vaccines mean reopening is in sight, but the recovery is taking place at different speeds. The rate of new infections is falling in the UK and rising slightly in the US due to regional outbreaks in a few states, but both countries are lifting restrictions. In the euro area, the vaccination programme has been slower and the region’s recovery is lagging by three to six months.

Although inflation is picking up in the US as its economy reopens, we don’t expect it to spiral out of control. That’s why we believe the US Federal Reserve is unlikely to hike interest rates for at least the next two to three years, even though financial markets seem to think it will happen sooner. We’re even more confident about the outlook now that the risks to the recovery from the health crisis have faded.

Covid-19 has affected workers and their employers in different ways. The euro area’s unemployment rate hasn’t risen by much because government schemes cushioned the blow and continue to flatter the figures. In contrast, the US unemployment rate skyrocketed to 15%. It’s already fallen back down to earth, thanks to stimulus measures and a successful vaccination programme, and could even return to pre-pandemic levels by the end of the year.

Top chart

Nice work (if you can get it)

Unemployment in the US has almost fallen to pre-pandemic levels

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Source: Quintet, Bloomberg

Bill Street
Group Chief Investment Officer

autograph

Consumer prices fell in spring 2020 as the coronavirus pandemic took hold. With the lockdowns forcing many of us to stay at home, restaurants, shops and hotels were empty and the skies and roads were unusually clear. Fast forward to this year and the long-awaited inflation spike has finally arrived. One of the reasons is the ‘base effect’ – last year’s fall is distorting the comparison with 12 months earlier.

The global economy now has two engines propelling it forward. China has already roared back to life and the pace of growth in the US is also robust, with activity broadening from manufacturing to services and domestic demand. Europe is struggling with its vaccination programme, but the situation should improve later in the year. With supportive monetary and fiscal policies in place, the near-term outlook remains one of recovery, reflation and rotation into assets geared to accelerating growth.

Bill street image

Inflation is rising as lockdown measures ease, but we still think it’s likely to be temporary

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COUNTERPOINT MAY 2021

Opening up

The recovery remains on track, although some parts of the world will be able to relax and enjoy the summer sooner than others

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COUNTERPOINT MAY 2021

Opening up

Logo

The recovery remains on track, although some parts of the world will be able to relax and enjoy the summer sooner than others

Consumer prices fell in spring 2020 as the coronavirus pandemic took hold. With the lockdowns forcing many of us to stay at home, restaurants, shops and hotels were empty and the skies and roads were unusually clear. Fast forward to this year and the long-awaited inflation spike has finally arrived. One of the reasons is the ‘base effect’ – last year’s fall is distorting the comparison with 12 months earlier.

The global economy now has two engines propelling it forward. China has already roared back to life and the pace of growth in the US is also robust, with activity broadening from manufacturing to services and domestic demand. Europe is struggling with its vaccination programme, but the situation should improve later in the year. With supportive monetary and fiscal policies in place, the near-term outlook remains one of recovery, reflation and rotation into assets geared to accelerating growth.

Covid-19 has affected workers and their employers in different ways. The euro area’s unemployment rate hasn’t risen by much because government schemes cushioned the blow and continue to flatter the figures. In contrast, the US unemployment rate skyrocketed to 15%. It’s already fallen back down to earth, thanks to stimulus measures and a successful vaccination programme, and could even return to pre-pandemic levels by the end of the year.

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When the coronavirus pandemic struck last year, some countries suffered more than others. Effective vaccines mean reopening is in sight, but the recovery is taking place at different speeds. The rate of new infections is falling in the UK and rising slightly in the US due to regional outbreaks in a few states, but both countries are lifting restrictions. In the euro area, the vaccination programme has been slower and the region’s recovery is lagging by three to six months.

Although inflation is picking up in the US as its economy reopens, we don’t expect it to spiral out of control. That’s why we believe the US Federal Reserve is unlikely to hike interest rates for at least the next two to three years, even though financial markets seem to think it will happen sooner. We’re even more confident about the outlook now that the risks to the recovery from the health crisis have faded.

New image

Although geopolitical risks remain, conditions around the world are more stable this year

A more stable year

Last year was a busy one for political risk with the US election and Brexit. Although geopolitical risks remain, conditions around the world are more stable this year.
In the US, President Biden’s infrastructure plan is in the spotlight following his administration’s USD 1.9 trillion pandemic relief package. In contrast, the EU recovery fund continues to suffer delays and the money has yet to be deployed.

As the world economy recovers, commodity markets have been buoyant and we’ve expanded our coverage. According to our models, gold looks fairly valued at current levels. Copper appears overpriced after temporary factors have driven it higher, although over the longer term decarbonisation trends should provide a boost to this important component of electric batteries. Oil prices are likely to suffer over the long term from this shift, although they could rise in the short term as economies reopen.


Breakeven inflation describes the difference between the nominal yield of a government bond and real yield on an inflation-linked bond of similar maturity and credit quality. If inflation averages more than the breakeven, the inflation-linked investment will outperform the government bond.

Following an increase in inflation expectations, we have closed our overweight allocation to US Treasury Inflation-Protect Securities (TIPS) relative to European government bonds. Although inflation is likely to rise further over the next few months, it’s unlikely to get out of control.

The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors. We have reduced our underweight exposure to USD investment grade credit because we expect spreads (the difference in yield) to remain tight.

logo

Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 22 April 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

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Welcome

Looking up

icon

Inflation is rising as lockdown measures ease, but we still think it’s likely to be temporary

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

Nice work (if you can get it)

Unemployment in the US has almost fallen to pre-pandemic levels

Source: Quintet, Bloomberg

Swipe to see the full graph

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icon

Investment focus

Spring has sprung

The risks to the recovery are fading, with successful vaccination programmes allowing some countries to relax their restrictions

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Quintet portfolio

Relative value

We continue to position portfolios to capture the growth from those areas of the market that should benefit as the world economy heals

icon

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains the most important issue, downside risks have receded as Covid-19 vaccination programmes are accelerating, policy easing continues and reopening is happening

Counterpoint May 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

Click an asset class to show the sub-asset classes

The asset allocation vector

updated_label.png (copy)

More on our views

When we increase the allocation to one asset class in portfolios, we have to decrease the allocation to another. That’s why our tactical asset allocation (TAA) decisions come in pairs, where we underweight and overweight relative to our strategic asset allocation (SAA) weightings. The specific numerical weights from the chart relate to a EUR balanced portfolio and can be adjusted for different profiles.

US equities / US investment grade bonds
Given our positive outlook, we believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle.

UK small cap / Global equities
UK small caps lagged in the recovery and valuations are more attractive than for global equities, while its cyclical sector composition is supportive as growth recovers.

Asian high yield bonds / US investment grade bonds
Asian high yield bonds offer significant additional yield over US investment grade bonds, and default risks are well compensated for.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. A weaker US dollar and rising oil prices would be likely drivers of tighter spreads.

US Treasuries / Eurozone government bonds
We have higher conviction in US Treasuries as a diversifier than in European government bonds thanks to their higher yield to maturity and better credit quality.

US Investment grade bonds  / Eurozone government bonds
The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors.

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FISCAL
EU Recovery Fund (Q3)

MACRO US/UK
reopening (ongoing)

FISCAL
Biden’s infrastructure plan (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation and bond yields (ongoing)

New image (copy)

TRADE
Geopolitical tensions (ongoing)

MEDICAL
European Lockdowns (ongoing)

New image (copy)
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Seeing the world differently

Quintet’s Chief Investment Office share their views on the economy, markets and investing in our monthly Counterpoint publication.
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