The main points of the allocation meeting
- The U.S. Federal Reserve left its policy rate unchanged at 3.50–3.75% at last week’s meeting, but its overall tone was more hawkish than expected. The Fed’s new Chair, Kevin Warsh, placed particular emphasis on maintaining price stability, and half of the Federal Open Market Committee members who submitted forecasts indicated that a rate hike is possible this year. At the beginning of the year, markets expected two rate cuts in 2026, but Fed funds futures are now pricing in at least one rate increase. In its concise statement, the Fed emphasized that economic growth, investment, and labor markets have remained resilient despite elevated uncertainty, while Inflation remains too high relative to the 2% target. The Fed expects the U.S. economy to grow by 2.2% and inflation to average 3.6% this year
- Negotiations between the United States and Iran on a final peace agreement are progressing, which has calmed energy markets. The United States has lifted its naval blockade and granted a 60-day license allowing Iranian oil exports to resume on international markets. Brent crude oil is currently trading at around $77 per barrel, compared with roughly $70 per barrel before the war began. However, key issues remain unresolved, including control of the Strait of Hormuz and Lebanon. President Donald Trump has faced growing pressure to bring the conflict to a definitive end, as higher energy prices have pushed inflation higher and weighed on Republican support ahead of the November midterm elections. The memorandum of understanding has also drawn criticism for providing Iran with substantial economic relief without imposing sufficient restrictions on its ballistic missile program.
- U.S. semiconductor company Micron will report strong earnings this evening. The results and outlook are widely viewed as an important gauge of the strength of the AI investment cycle, as Micron is one of the world’s three leading memory manufacturers alongside South Korea’s SK Hynix and Samsung. Training and running AI models require large amounts of memory, which has driven strong demand for these companies’ products and lifted their share prices significantly this year. According to consensus estimates, Micron is expected to deliver nearly 1,000% year-on-year earnings growth. Technology stocks, and semiconductor shares in particular, have nevertheless come under pressure in recent days, with South Korea’s tech heavy KOSPI Index falling as much as 10% on Tuesday. Micron's results, and especially its outlook, could determine the short-term performance of AI and semiconductor stocks
- We overweight equities and underweight money markets. Within equities, we overweight EM 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.
