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Fixed income poses challenges
- Tuesday, June 07 - 2005 at 17:09
We left asset allocation unchanged. Fixed income proved to be the main point of discussion. The recent renewed fall in bond yields generates some concern and recent economic data generates the need to reconsider the target levels of interest rates and bond yields.
Economics
This week we expect the US trade deficit to have risen in April on the back of a rebound in imports. Import price inflation is likely to have slowed in May.
We expect German industrial production growth in April to have declined in line with recent business surveys. In Japan machinery tool orders should have remained strong in May, in line with a pick up in exports. Consumer sentiment for May probably remained flat.
Foreign exchange
Euro/dollar: The euro is still heading for a triangle break-out. This target lies at 1.2000/1.1850.
Dollar/yen: Consolidation between 108.00 and 108.90.
Fixed Income
We stick to our short duration position for now, mainly because the current US yields are unsustainably low. Our position is also becoming rather uncomfortable, and we are currently reviewing our interest rate forecasts.
We advise opening long yen positions. The Japanese economy currently offers the highest chance of a positive surprise. A weaker euro should in the end prevent much lower yields from the current level.
Equities
If May was strong, the start of June wasn't bad either. Despite a rising oil price, stock markets at both sides of the ocean managed to continue their rally.
In the US interest rate sensitive sectors outperformed, while in Europe cyclical sectors took advantage of the weakened euro. At both sides of the ocean energy performed well. European telecom suffered from a series of profit warnings and downward revised forecasts.
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Internaxx
Tuesday, June 07 - 2005 at 17:09 UAE local time (GMT+4)
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This article was updated on Sat May 26 2007.
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