NNIP: On the Edge of Chaos

Economic Outlook
Economic data from the US are improving after a first quarter that appears softer than originally estimated.

Domestic income data as well as favourable signs from the labour market suggest that the US economy will bounce back from the first-quarter pothole. It should be only a matter of time before we see the rebound in consumer spending. 

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Asset Allocation
Despite our faith in the resilience of underlying fundamentals globally, the edge of chaos on which Greece is now balancing weighs on our risk appetite in the near-term.

The worst possible outcome for Greece would still be significantly smaller in its global impact than it would have been during the last five years. But still it would be very disruptive and trigger turmoil in financial markets for at least a couple of weeks.

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Fixed Income

Emerging market assets are vulnerable to shifting Fed expectations.

Investment capital is flowing out of emerging markets (EM). The carry trade has become less attractive due to rising bond yields in developed markets while EM fundamentals have deteriorated as well. 

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Equity Strategy
We reduce our position in the Eurozone in favour of the US.

We have reduced our overweight position in Eurozone equities. Next to the volatility caused by worries over Greece, the rapid deterioration in earnings momentum is a reason to become a bit more cautious.

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