Good news, but too much at once?
The economic data could hardly be better. Businesses are overly optimistic in economic surveys. No wonder, if you look at the order intake in the manufacturing industry, for example. But the service sector is also enjoying brisk demand. After more than a year with the pandemic, pent-up demand is now being unleashed. In addition, the third Corona wave seems to have been broken in Europe, so that the travel industry and restaurants will soon also be able to breathe a sigh of relief.
However, these catch-up effects may lead to problems. In many sectors, demand has recently risen so strongly that bottlenecks have occurred. In the construction industry, for example, materials such as wood have become scarce. Long delivery times threaten to delay construction projects. And whenever supply becomes tight, prices rise.
These bottlenecks will not disappear overnight. Nevertheless, we assume that they will only be temporary. In many cases, supply capacities are now being expanded too much. This cyclical phenomenon is well known and is called the hog cycle. In response, prices will fall. Until that happens, the central banks will be challenged, especially the Fed. We expect that they will soon have to announce a reduction in bond purchases.
Against this backdrop, we confirm our underweight and short duration in government bonds. In equities, we remain our neutral stance with a regional preference for European equities.