Halister News

(Bloomberg) -- The pressure on governments to retake control through fiscal and budget policies is a pivotal paradigm shift for equity and fixed-income markets, so need to be doubly alert in coming months, Didier Saint-Georges, managing director at Carmignac, writes in monthly investment note.

• Should convincing fiscal stimulus materialize, equity markets could find the support they currently lack and the bond market would be highly vulnerable, especially as inflation pressure starts to build
• NOTE: Draghi emphasized the need for fiscal stimulus at yday’s press conference, citing the G-20 statement, while in the U.K. Chancellor Philip Hammond said he will consider his fiscal response in the Autumn statement
• A shift to fiscal stimulus isn’t guaranteed, which is reflected in bond markets with 30Y UST yields close to all- time lows
• In the U.S., it can take a long time for actions to follow words and such a move would require a degree of political courage in Europe and Japan which we’re not unaccustomed to
• Bond markets could still hold up even if the economy disappoints, although at current levels the upside potential would be very limited
• The extension of highly accommodative monetary policies and the possibility of economic support packages mean the outlook is brighter for equity and credit markets
• If economic data disappoints in 4Q, may see a reversal of the expectations built into cyclical stocks; if inflation data surprise positively at the same time, that could also hurt yields even with weak data
• Took some profits in credit in August after spreads narrowed; is positioned for higher inflation in the U.S., with shorting 10Y U.S. interest rates via futures
• In equities, significantly increased equity allocations from June and raised EM exposure in August