A weaker US labour market causes downward pressure on wage growth, which softens private consumption and dampens the econom-ic outlook. Inflation moderated in the US and Europe.
In August, disappointing US jobs figures and tightening measures from the Bank of Japan triggered sharp market reactions, with the VIX rising to its highest level since COVID-19.
Despite the turbulence, global equities bounced back robustly, hitting new record highs.
Key European economies like Germany and France demonstrated certain resilience in Q3, although overall growth is nowhere.
Major central banks, including the Fed, ECB, SNB, BoC, BoE and PBoC reduced interest rates, while Japan upheld its reflationary policy stance.
China’s economic outlook continued to face hurdles, with GDP growth slowing to 4.7% year-over-year in Q2, down from 5.3% in Q1 and below the projected 5.1%.
Conclusion: As a severe recession is not on the cards, we maintain our positive bias on risky assets, although we may reduce our equity exposure if economic growth weakens. Active management is crucial in a low-growth environment due to increased disparities among companies and sectors. We favour credit investments, particularly loans and non-cyclical short-term high-yield bonds with yields of 7-9%. While we maintain a positive outlook for equities, we prefer an absolute return strategy over a traditional relative value approach in the current market context.
