Hawks on the horizon
Monetary policy hawks have selectively started to appear along the horizon. Several Emerging Market and commodity exporter central banks have started to taper bond purchases or raise policy rates. Recent signals from Fed policymakers support our expectation of a tapering announcement
later this year. This risks triggering temporary market volatility, but strong growth and earnings data give us confidence to buy US and European equities on any such dips and sell into USD rallies.
Equities: We prefer energy and industrial sectors in China as well as sub-sectors
consistent with policy goals and our long-term investment themes
Bonds: The 10-year Treasury yield would need to break above 1.32% for downward pressure to reverse.
FX: EUR/USD may re-test support at 1.1685- 1.1750 before a break above 1.20 signals a resumption of the long-term rally.