Global equities suffered a setback in August, with both DM/EM equities retreating from their annual peaks reached late July. US equities showed some resilience with a 2% decline vs. EZ equities down 4%, while EM equities dropped more heavily by 7%. In August, US long bond yields surged back to their recent peak, surprising investors as it occurred despite a rather mixed macro newsflow and a tangible decline in inflation. Both US Treasuries rating downgrade and adverse demand/supply have contributed to this upward trend, certainly far more than the US recession risk fading away. The Fed cautious guidance based on data dependency was reiterated once again at the Jackson-Hole symposium, helping to stabilize bond markets later in the month. However, higher bond yields challenge equities multiple expansion that fueled their rebound so far this year, while the global macroeconomic outlook keeps worsening with Germany and China at the forefront of the activity slowdown. The post-Covid excess savings of DM households has now vanished, exhausted by higher inflation, resulting in a sudden and marked decline in consumer confidence. Services sector surveys should converge towards the manufacturing ones, which have been already in recession territory for months. Moreover, the mounting evidences of a debt-related deflation era starting in China make a global manufacturing rebound unlikely in the short term. Going forward, the US economy looks more vulnerable to external deflationary pressures and to tighter monetary and credit conditions. Although a recession can be ruled out for 2023, earnings forecasts remain subject to downward revisions, in sharp contrast with the historically elevated US equity valuations. The US equities risk/reward remains unattractive, and a new correction looks increasingly likely.

The Fund returned +0.5% (A, USD) in August, ending on its 7% p.a. objective. Both GBP & EUR share classes ended above their respective benchmarks as well. The portfolio has been fully invested since mid-August, taking advantage of the spike in equity volatilities earlier in the month. The selection of income notes has a 18.4% downside protection with a 4-month average residual protection. The running yield reaches +9.4% p.a. (USD, gross) until next expiries early Sept.