The real test for risky assets lies immediately ahead with central bank meetings, the Brexit vote, and the Spanish election later in the month. We continue to favor Higher Quality credits within fixed income.
Despite recent improvement in some inflation measures, we are not convinced the war against disinflation has been won. The risk of being too early on the inflation call far outweighs the risk of being too late.
After the last couple months’ strong surge, risky assets are entering a seasonally unfavorable period, with Brexit looming particularly large in the near term. We still favor higher quality credits within fixed income.
We have mentioned a number of times that China had experienced a very unpleasant “second-hand” tightening due to its peg to the dollar. Its trade competitiveness has suffered tremendously. With a weaker dollar the Chinese Yuan can re-gain some of its competitiveness while maintaining its peg to the dollar. A rare win-win in today’s convoluted world of finance.