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Kristal Insights - September 2021

Kristal Insights - September 2021

August has proved to be a broadly positive month across risk assets. Developed market Equities were bid with NZ leading the way at the close to a 5% gain. In EM, the picture was less clear-cut with parts of Asia and EMEA outperforming - India gained close to 9% on the month and the likes of Brazil and South Africa were down close to 3% overall. Over on the fixed income side, US treasury yields were lower on the month with the yield curve flatter. The US 10Y yield is quite sticky around the 1.3% mark despite yields moving higher in the rest of DM. The spread in yields between the European core and periphery widened on the month before narrowing again following the dovish stance at last week's ECB meeting.

The US dollar was stronger on the month as well most of the other DM currencies trading softer. With Crude falling close to 6.5% on the month, CAD led declines here. FX volatility was mixed with risk reversals indicating an expectation for a stronger dollar going forward. The HY market continued to go from strength to strength with the Option Adjusted Spread for the HY bond index falling further below 3%. The mix of lower rates and investor demand had led to a reduction in risk premium overall as corporations look to lock in lower financing costs.

The virus situation has mostly stayed out of the news cycle as vaccine drives remain on schedule in most countries. The key issue of inequality still remains with penetration rates in lower-income countries at only a fraction of those in the richer countries. In the US and EU, they have hit the target of inoculating 70% of the adult population, and the WHO is hoping to convince them on holding off on booster shots until the rest of the world is able to hit the 10% mark. The delta variant continues to play a key role though in growth expectations and market performance in general.

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By

Kristal Advisors

September 15, 2021

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