After abandoning the transitory narrative for inflation late last year, Fed Chair Powell once again surprised the financial markets last week by moving another notch towards abandoning hyper-accommodative monetary conditions. The FOMC still did not see fit to hike rates on Wednesday and remains far behind the curve, but the message was clear: the Fed badly underestimated the breadth and durability of the rise in inflation, and now needs to get going on the long path towards normalizing policy.
A just-published report examined a number of key investment issues in view of the breakout in government bond yields in most developed markets (DM), and the negative knock-on effect this had on global equities (especially growth stocks). Investors (and DM central banks) are now being forced to rethink a key bullish narrative: the U.S. rate-hiking cycle is most unlikely to be short and shallow like the Fed’s last cycle. The report also updated our absolute return portfolio, which saw a number of changes in our positions this week to take advantage of the evolving macro backdrop, which is creating fresh opportunities and risks.