The main points of the allocation meeting on September 09, 2026
The U.S. August employment report came in well above expectations, adding to pressure for a rate hike by the U.S. Federal Reserve (Fed). Nonfarm payrolls rose by 162,000, versus expectations of around 55,000 — the strongest monthly gain since March. June and July were revised up by a combined 55,000, lifting the three-month average to 71,000. The unemployment rate held steady at 4.1%, and average hourly earnings rose 3.1% year-over-year. Following the release, market-implied odds of a September Fed rate hike rose from around 52% to roughly 59%.
Elevated oil prices and political uncertainty in Germany weighed on European equities last week. Brent crude rose 7.8% over the week as attacks on vessels near the Strait of Hormuz reignited concerns over oil supply. European equities fell 1.1% for the week, while U.S. equities were roughly flat (+0.1%). In Germany, the Alternative for Germany (AfD) won a historic victory in Saturday's Saxony-Anhalt state election with around 44% support, as share of the Christian Democratic Union of Germany (CDU) collapsed to roughly 17% — the first time since World War II that a party classified as far-right has become the largest party in a German state. The result has added uncertainty over coalition talks in Magdeburg.
Government bond yields kept grinding higher, driven by strong data and central bank pressure. The German 10-year yield rose to 3.37%, its highest level since 2011, while the U.S. 10-year climbed to 4.80%, its highest since October 2023. The move was reinforced by strong PMI data, heavy government bond supply, and sticky inflation. Fixed income was broadly weaker for the week: government bonds, investment grade, and high yield corporate bonds each fell around 0.3%, while emerging market bonds fell 0.2%.
The central bank meeting bonanza continues: the European Central Bank (ECB) is expected to hike rates on Thursday, and U.S. August inflation data is due Friday. A 25bp ECB hike to 2.50% is expected on Thursday, September 10. U.S. August CPI is released Friday, September 11, with markets expecting headline inflation to rise to around 3.4% year-over-year. That print is pivotal ahead of the Fed's rate decision on September 16.
We overweight equities and underweight money markets. Within equities, we overweight emerging market equities, underweight European equities, and remain neutral elsewhere. In fixed income investments, we overweight high yield corporate bonds and underweight government bonds, while remaining neutral on emerging market bonds and investment grade corporate bonds.
