Federal Reserve Indicates Rates Close to Target

Risky assets roar back after last week’s tough week as the Federal Reserve indicates that short-term rates are close to “normal”
US large cap, in particular, staged a nice earnings-related recovery
REITS continue quietly performing well – up 5.8% for the year (best among our key asset classes)
EM stocks also continue their recovery an are up 2.5% over the last month
Aggressive, domestically focused multi-asset class strategies outperformed less risky and more internationally focused allocations
YTD lower risk asset allocation strategies have outperformed especially if the allocations involved international equities
Commodities remained volatile and subject to the direction of oil prices – the trend is still negative

Currencies:

The USD appreciated slightly last week and remains in a significant Up Trend
The South African Rand continues recovering from oversold conditions
The British Pound continued depreciating due to major uncertainty regarding whether BREXIT will pass Parliament
The Mexican Peso recovered a bit last week as a new administration is sworn in this week
In general, FX volatility has increased substantially in the last couple of months

Commodity indices continue in a Down Trend as oil markets had another down leg
On the flipside, grain prices have been recovering since the summer with soybeans again up last week
Lumber prices continue being extremely volatile and remain in a Down Trend
Gold and Silver were slightly down last week and barring a real crisis continue on a downward trend especially in light of higher short-term interest rates

Home bias keeps winning as multi-asset strategies with international assets have significantly underperformed
The strong USD is partly to blame and the end may be near as the Fed indicates rates close to “normal”
We still foresee one further rate hike in the US in December but fixed income market conditions have stabilized
Our view is that volatility is here to stay
- In fact, we see current asset class volatility as normal
We are also watching out for any strong jump in inflationary expectations (which have been trending down)
- Tariffs are inflationary and will be reflected in higher consumer prices eventually
EM equities, in particular, are recovering but will end up in the red this year
- We still believe that an allocation is warranted
Growth outperformed Value last week but we are seeing signs of industry rotation toward value sectors
- The Momentum trade while still ahead YTD is losing strength despite a bif up week
The G20 meeting concludes – the US and China are still at odds over tariffs but maybe rational minds will prevail?

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Eric J. Weigel

Global Focus Capital LLC

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