NNIP: Rising US yields and spiking global price inflation create headwinds

NN Investment Partners (NN IP) released its most recent ‘Multi Asset Monthly’ publication, discussing the benign combination of several factors that drive the preference for cyclically sensitive assets in the tactical asset allocation:

Asset allocation and scenario update, by Patrick Moonen, Principal Strategist Multi-Asset

• Normalization path is becoming more tangible as vaccination roll-outs pick up pace

• Economic policy support remains supportive

• We maintain our pro-cyclical stance

MARKET REVIEW, by Patrick Moonen, Principal Strategist Multi-Asset

• Risky assets continued their strong performance in April

• US bond yields retreat following last month’s steep rise

• Strong fundamental support continues to drive bull market

ECONOMIC OUTLOOK, by Willem Verhagen, Senior Economist

• The Covid response is much different from policy after the Global Financial Crisis

• Economic constraints are unlikely to bite anytime soon

EMERGING MARKETS, by Maarten-Jan Bakkum, Senior Emerging Markets Strategist

• Global trade and commodity prices remain positive exogenous factors

• Pandemic is frustrating EM domestic demand

• Rising US yields and spiking global price inflation create headwinds

FIXED INCOME OUTLOOK, by Fouad Mehadi, CFA, Senior Investment Strategist Fixed Income and Alireza Kahali, Multi-Asset Strategist

• We expect global interest rates to continue to rise, with growing risk of a less-dovish Fed

• EMD HC sovereigns seem attractive tactically; headwinds may arise in the medium term

EQUITY OUTLOOK, by Patrick Moonen, Principal Strategist Multi-Asset

• Earnings show strong, V-shaped recovery

• Yields are a key factor for equities

• The next phase of the cycle will bring a more balanced sector performance

COMMODITY OUTLOOK, by Chengbo Yang, Junior Data Scientist

• Most prices rebound to pre-pandemic levels

• Correlation breakdown signals normalization