LGT Private Banking Europe House View - September 2021.
ENPNewswire-September 2, 2021--LGT Private Banking Europe House View - September 2021
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Release date- 01092021 - The doves remain at the helm at the Fed, as Chairman Powell reiterated the Fed's patient stance in face of rising corona risks at the Jackson Hole symposium.
At the asset allocation level, our two key convictions remain unchanged. We prefer equity investments to bonds and expect commodities to yield a better return than liquidity. In equities, we recommend realizing some of the gains in the durable goods sector, e.g. in luxury goods stocks. In the fixed income space, we adjust our assessment in corporate and high yield bonds, increasing our quality ratio.
LGT Private Banking Europe House View
In financial language we distinguish between 'hawks' and 'doves' regarding the orientation of central banks' monetary policy. The former tends to adopt a 'tougher' stance on interest rates, while the latter tend to pursue a 'softer' approach. Federal Reserve Chairman Jerome Powell clearly belongs to the doves, and this camp seems still firmly in control after this year's Jackson Hole central bank symposium. Powell's core message to the financial markets made it clear: while the economy has made encouraging progress, the development of the corona pandemic continues to create a high degree of uncertainty. This means that the Fed will adjust its monetary stance in due course, but tapering, or in other words, a reduction in quantitative easing (QE) does not seem imminent - for sure not at the next FOMC meeting on September 22. Although the Fed could start tapering, i.e. reducing securities purchases, before the end of this year, a first interest rate hike is not expected for quite some time - probably not until 2023 at the earliest. This guarantees a continued positive environment for companies and the stock markets.
On capital markets, an initial increase in the Fed's key rates is still not expected for another 18 months. This expectation has already held steady for two quarters, implying that the start of the US interest rate cycle is being pushed continuously into the future. Consequently, financing conditions remain cheap, and it is therefore hardly surprising that investors reacted calmly to Powell's statements at the Jackson Hole conference. Stock indices on Wall Street even managed to climb to new all-time highs, while long interest rates fell slightly.
Growth and inflation mix continues...
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