"It should be noted here, though, that the Fed’s favourite benchmark displayed an upturn of 0.3 per cent versus August, which came as something of a disappointment.
"Inflation in manufacturing prices fell to 2.1 per cent and excluding food and energy to 2.6 per cent. Declining price pressure is also visible here. And surveys of large and small businesses show that they’re seeing prices rise less rapidly.
"Wage costs display a rather mixed picture. Hourly earnings growth declined in September to 4.2 per cent year-on-year. When you bear in mind the slight growth in labour productivity, this is reasonably consistent with the Fed’s target inflation of 2 per cent."
But despite that view, Leenders notes his asset allocation decisions remain largely unchanged.
He says: “In recent months we’ve geared our investment policy more towards lower interest rates. We’ve increased our position in investment-grade bonds to neutral and raised the interest rate sensitivity of European government bonds.
"In the US we’ve held a position in government bonds for some time now. We believe that interest rates will fall but currently see no reason to prepare for this more than we already have."
Leenders adds: "In the case of equities, we recently reduced our underweight slightly by acquiring Japanese equities. We did this when equity markets underwent a downturn. This was largely driven by higher interest rates but nevertheless means there’s less potential for further downturns.
"We continue to hold an underweight due to our cautious economic scenario. In our view equity valuations remain too high for this scenario and we also believe that expected earnings are excessively optimistic.
"In the short term a rapid decrease in interest rates poses a risk to our equity underweight. If bond markets prove to have gone slightly too far with their higher yields, and lower growth and lower inflation lead to a rapid downturn in interest rates, this will bring some relief to equity markets."
Rupert Thompson, chief economist at wealth management firm Kingswood, says that while central bank actions have led to improved sentiment among investors, he feels its risky to interpret their intentions in too clear cut a way.
He says: “The market is now pricing in rates in the US and UK being cut from 5.25 per cent currently to around 4.5 per cent by the end of next year,” but feels that the macro environment is “unusually uncertain” right now and, as a consequence, he says its more prudent to diversify portfolios than to be overly exposed to any one theme or macro economic scenario.
Julie Dickson, investment director at Capital Group, says the relatively strong performance of equities at the start of 2023 was something of a mirage, as most of the gains came from just seven large technology focused equities in the US.
