Jessica Fannin

Current economic data suggests the US economy is losing momentum, with consumption growth particularly subdued. While labour supply has been constrained by lower participation rates and reduced immigration, slowing labour demand is expected to push unemployment higher, creating room for the Federal Reserve to cut rates. The key risk for US markets remains a right tail risk in long-term yields, driven by an unsustainable debt trajectory and mounting government pressure on the Federal Reserve to ease policy. 

We expect the dollar to continue to weaken, making local and emerging assets more attractive. A pickup in commodity prices has also been a tailwind to emerging markets and we have moved emerging market equity exposure up.

As US bonds have already priced in interest rate cuts from the Federal Reserve and local bond yields have also come back significantly, we are trimming allocation to local bond funds to take some profit.

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