Global Asset Allocation
CITI’S TAKE
Since our last asset allocation, the Iran conflict remains an overhang, mostly impacting fixed income markets, though on the positive side US data has come in softer, and Treasury Secretary has signaled an intent to stabilize the backend. We had been neutral duration, with an US underweight against Europe, but at this stage the US is unlikely to underperform the RoW. We therefore switch to being overweight EM local against underweight Japan, remaining overall neutral duration. In equities, we stay overweight with a focus on the US. We have capacity to add to equities, but prefer to use a pullback, potentially into the midterms. Our IG credit underweight remains a partial hedge. Earlier this week we added a gold long to our existing base metal overweight. In FX, we are short USD with an EMFX high yielder long.
In equities, we stay overweight — We favor the US as a less oil sensitive market. We have capacity to add to equity risk, but the normal pattern for equities is to pull back into the midterms, and we would use that dip to add risk.
In sectors, go neutral — We reduce the growth risk here by neutralizing our Tech and industrial overweights in our GAA portfolio. We anticipate a more medium-term buying point and opportunities for sector selection may come some weeks ahead of the midterms.
In rates, we stay neutral duration — Duration is most closely linked to oil, and uncertainty remains high on this front. But given softer US dataflow and a larger buy back at the back end we cut our US underweight (against Bunds), and instead come back to our long lasting Japan underweight, now against EM local.
In credit, we stay underweight — Credit remains a hedge for our equity overweight, as issuance by hyperscalers will remain substantial.
In commodities, we remain overweight, adding Gold — We are neutral on energy, as there are two sided risks. We remain long base metals given still sufficiently strong global growth momentum and added a long gold position in the aftermath of the Treasury announcement.
In FX we are long EM carry — We do not FX hedge our EM local allocation, leaving us short USD versus EM. We carry optimize the hedge, as we prefer to be long higher yielders, which also may suffer less from a terms of trade perspective, if oil risks materialize.
In illiquid, we stay long Uranium.
House Views August 2026 – Bessent And The Back End
Still long in equities but holding off on adding more risk. We tactically reduced our equity risk in early July by cutting emerging Asia, but we are staying overall overweight, driven by the US. The argument remains the same: liquidity is still relatively supportive, earnings revisions keep coming in positively, and sentiment is not as bullish as it typically is at major tops. If anything, the liquidity argument became stronger, with the announcement by the US Treasury likely – at the very least – slowing down any repricing at the back end of the curve. While we have capacity to add more risk, we hold off as there is typically a dip ahead of the midterms, which we would be keen to use to add risk back for a year-end rally post midterms. We prefer the US over the narrower emerging Asia markets, as it keeps at least a toe in the AI trade but also does benefit from some diversifying flows into other sectors. The US is also more insulated from renewed oil upside.
Staying neutral duration, but now long EM, short Japan. Given the high uncertainty and importance of oil for the overall duration call, we stay neutral, but with some changes under the hood. We close our longstanding US duration underweight, due to a combination of a weaker economic surprise index, removing some pressures from the Fed to hike, and the signaling by the US Treasury that supply at the backend will be controlled. While the success of the measure is still somewhat unclear, we would note that it should at least keep volatility more muted, as markets may be hesitant to test the Treasury too forcefully. Instead, we move back to our long-standing Japan underweight, where bond buy backs are less likely, and the BoJ remains hawkish. On the long side we switch from Bunds (which are very exposed to oil) to EM, which may benefit from USD weakness, if US rates can go at least sideways.
We reiterate our IG credit underweight. We remain underweight in both US and EU IG credit, as a hedge for our equity overweight. Plentiful issuance has led to a pullback in spreads, but with supply not cresting yet, credit still screens as a good hedge.
Short USD in FX. Aiming to control yields at the back end of the curve should be USD negative. While rising oil prices are clearly a risk to that view, our commodity team stresses high uncertainty on both sides. In any case, we choose not to FX hedge our EM local position, which results in a long EMFX position, where we focus on the high yielders, some of which would benefit from higher oil through the terms of trade channel, mitigating oil risk. We also have an overall USD bearish bias and are still long EUR in our trading book.
Adding gold to the long base metals position in commodities. We remain neutral on energy, given that our commodity strategists still see oil eventually lower. We also remain long base metals, as global growth momentum remains strong. Earlier this week we added a gold long. With the US Treasury aiming to control yields at the back end of the curve, investors will likely position for other debasement trades, instead of the steepener. Furthermore, positioning in gold has cleaned up this year, and we expect the more recent inflows to continue, moving gold higher.
Moderately risk on. Overall, we remain moderately risk on, with some hedges.
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