Modestly overweight in equities

Economics

This week we expect growth in US core durable goods orders to moderate in October following a strong September. The final reading of the University of Michigan consumer confidence should be confirmed up for the month of November.

In Europe we expect the German Ifo business sentiment to stabilise for November. In Japan we expect Tokyo underlying consumer prices in November to have declined again.

Foreign exchange

Euro/dollar: up to test next resistance at 1.3150/1.3250. The euro should now remain above support at 1.2985 to keep the uptrend intact and to avoid a deeper correction back to 1.2840. Dollar/yen: May test support between 103.40/102.75 before making an upward correction back towards 105.30 respectively 107.00.

Fixed Income

Yield curves were roughly unchanged over the week. In the U.S. yields on the 10-year benchmark were slightly lower at the end (around 4.10%) of the week due to mixed economic data.

In Europe, the 10-year benchmark traded in a narrow range. With mixed economic data expected in the coming week, the evolution of the euro is expected to remain the main driver, especially for European bond markets.

Equities

Last week the discrepancy between economic fundamentals and stock market evolution became again a bit larger. The fear to miss out on the possible upcoming end-of-year rally is bigger than worries about disappointing economics.

We clearly stick to the view that not that much has changed from a month ago, but in order to benefit from the momentum play we not only increased the weight of equities, but also made some changes in our sector allocation.

We now favour US and European Telecom, European Financials and US Healthcare. On the other hand, in both regions we stick to our underweight in Materials, Industrials and a slight underweight in IT.