Insights

Weekly Market Update

Geraldine Sundstrom, portfolio manager, comments on what’s moving markets and how the PIMCO GIS Dynamic Multi-Asset Fund (DMAF) is positioned.

FOREWORD

  • Access these views via the Dynamic Multi-Asset Fund, a dynamic fund designed to deliver across market environments and help investors navigate the toughest market situations.

From the desk of Geraldine Sundstrom, Friday 25th November 2022.

Volatility Breather

Markets used the Thanksgiving week to quieten down significantly. Indeed the VIX index collapsed during the week to a mere 20.5%, a number we have not seen in a while and down from the low 30s back in October. There is a sort of ambient contentment as markets see confirmation of a mild recession, an increasingly dovish Fed, and oil prices coming off sharply lending a hand.

More precisely the week brought Flash PMIs which were genuinely soft in the US with a composite index at 46.3 vs expectations of 48 and a 48.2 print in October, but consistent with a mild recession. That said, further details in the manufacturing index brought a few concerning signs, with new orders at a low 45 and backlogs down to 44.5, confirming that business ahead is not rosy and that pandemic bottlenecks are all but resolved. On that note, the container composite freight index continued its utter collapse, down another whopping 7.2% week over week to reach $2,404, versus a peak of $21,000 to put in perspective. Meanwhile, in Europe PMIs had a good bounce coinciding with receding fears around gas prices and blackout potential. The composite index was up 0.5pts to 47.8. Various sentiment indices from consumers and businesses on either side of the Atlantic also point to stabilisation at low levels but, importantly, no further deterioration.

Mild recession signs aside, what about central banks? Messages there were once again split in respective camps. South Korea and Israel surprised on the dovish side with smaller than expected hikes, while New Zealand and Sweden stayed in the hawkish +75bp camp. European Central Bank speakers blew hot and cold, but the hawks had the upper hand in firmly keeping a 75bp hike on the table for December that will mostly depend on the next inflation print. Finally, the Fed Minutes have sealed the view of a step-down to 50bp in December. This was enough ambient dovishness to keep the fixed income market under some relative stability.

One final factor helping the cause of lower volatility was oil prices, which have come-off significantly under the influence of a rising COVID-19 wave in China, leading to measures to reduce mobility, as well as a delay in the application of the oil price caps on Russian oil by Europe. The result is a Brent oil price down from the mid-$90s per barrel to the low $80s in less than a month and we are all but back to pre-Ukraine war prices that will bring welcome disinflation in the months ahead. However, it remains to be seen how OPEC will react to oil prices at their coming meeting on 4 December, but a cut in production could be on the cards.

In the DMAF portfolio, we continued to monetise more of our equity upside options and our position has now reduced significantly in the past two weeks. We are more positioned to benefit from range-bound equity markets from now on.

Géraldine

How can DMAF benefit investors in today’s uncertain markets?

i. Provide optionality
ii. Enhance returns
iii. Control risk

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The Author

Geraldine Sundstrom

Portfolio Manager, Asset Allocation, EMEA

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Disclosures

Data as of 25th November 2022 unless otherwise stated.

Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future.

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