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Weekly Market Update

Geraldine Sundstrom, portfolio manager, comments on what’s moving markets and how the PIMCO GIS Dynamic Multi-Asset Fund (DMAF) is positioned.

From the desk of Geraldine Sundstrom, Friday 4th October 2019.

Global assets are warm, wrapped in the TINA (There Is No Alternative) blanket anchored in the firm belief that the Central Banks’ ‘put’ is alive and well.

The probability of the Fed cutting rates a third time this year at its October meeting has rocketed towards 100%. The spectre of lower rates around the world are pushing investors towards riskier and riskier assets, as for many anything is a better alternative to negative yielding bonds regardless of fundamentals or potential losses down the line.

This is where the fly in the ointment could be...the gap between asset valuations and economic fundamentals is growing wider and wider. This week produced shockingly poor purchasing managers index (PMI) data for manufacturing and service in Europe and the US. Strangely China seems to be the only place where levels are sticking at mediocre levels with the Caixin composite at 51.4 vs 50.4 in the previous month, though the stimulus has been pouring for a while. Manufacturing is all but in recession with readings of 45.7 in the Eurozone and 47.8 in the US but more disturbingly, services data is now converging towards stall speed too, printing 51.6 in the Eurozone and 52.6 in the US.

To what extend such poor economic data may be overlooked because global rates are so low remains to be seen and certainly there are several schools of thought. Some are comfortably wrapped in ‘TINA’ while others, like us, are growing increasingly worried by this dichotomy. Indeed the efficacy of the Central Banks’ ‘put’ in a world stuck in trade and political uncertainty might be weaker than in the past. Furthermore, markets’ bouts of volatility in the past 12 months are here to remind us that liquidity can dry up fast and the blanket may catch fire. What is certain is that the upcoming corporate earnings season will provide precious information on the true state of the global economy and. Trade uncertainty may ebb next week if the US-China negotiations bring some love.

In DMAF portfolios our positioning remains defensive with equity exposure in the mid to high teens. We raised duration a little bit moving more towards the front end of the US curve looking for some steepening. Importantly, we aim to keep the portfolio agile and flexible.

The Author

Geraldine Sundstrom

Portfolio Manager, Asset Allocation

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Data as of 4th October 2019 unless otherwise stated. 

Past performance is not a guarantee or reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future.

GIS FUNDS
PIMCO Funds: Global Investors Series plc is an umbrella type open-ended investment company with variable capital and is incorporated with limited liability under the laws of Ireland with registered number 276928. The information is not for use within any country or with respect to any person(s) where such use could constitute a violation of the applicable law. The information contained in this communication is intended to supplement information contained in the prospectus for this Fund and must be read in conjunction therewith. Investors should consider the investment objectives, risks, charges and expenses of these Funds carefully before investing. This and other information is contained in the Fund's prospectus. Please read the prospectus carefully before you invest or send money. Past performance is not a guarantee or a reliable indicator of future results and no guarantee is being made that similar returns will be achieved in the future. Returns are net of fees and other expenses and include reinvestment of dividends. The performance data represents past performance and investment return and principal value will fluctuate so that the PIMCO GIS Funds shares, when redeemed, may be worth more or less than the original cost. Potential differences in performance figures are due to rounding. The Fund may invest in non-U.S. or non-Eurozone securities which involves potentially higher risks including non-U.S. or non-Euro currency fluctuations and political or economic uncertainty. For informational purposes only. Please note that not all Funds are registered for sale in every jurisdiction. Please contact PIMCO for more information. For additional information and/or a copy of the Fund's prospectus, please contact the Administrator: State Street Fund Services (Ireland) Limited and State Street Custodial Services (Ireland) Limited (collectively “State Street”), Telephone +353 1 7768000, Fax +353 1 7768491. © 2019.

RISK: Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Currency rates may fluctuate significantly over short periods of time and may reduce the returns of a portfolio. Derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Sovereign securities are generally backed by the issuing government. Obligations of U.S. government agencies and authorities are supported by varying degrees, but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and while generally supported by a government, government-agency or private guarantor, there is no assurance that the guarantor will meet its obligations. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value.

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