SUMMARY OF THE MACROECONOMIC INFORMATION
Bond Market
The ECB boosts monetary stimulus measures and supports the peripheral
The ECB has significantly boosted the monetary stimulus, pushing in part beyond the expectations of the market: the central bank has essentially pledged to keep rates on hold for over two years and to stimulate a recovery efficiency of the transmission mechanism of monetary policy. This scenario translates into support for sovereign debt, especially peripheral.
Currencies
EURO downhill after the new package ECB.
The ECB’s decision to lower the rate corridor and extend auctions to allocate an unlimited fine in all 2016 should dictate the pace of the marked changes in the coming months. The ECB will keep rates near zero far longer than those of the Fed and the Bank of England and this should strengthen the scenario of substantial retracement of the single currency.
The raw materials
The first part of 2014 under the banner of gains.
Resource base positive in the first half of the year, despite the background remain the critical factors dictated by geopolitical crisis and the performance of the Ukrainian economic cycle. The OECD confirms a recovery in the advanced economies, thus able to support the demand for commodities, but acknowledges a slowdown in growth in some emerging countries. In particular, China is not able to guarantee levels defers the past few years.
MACROECONOMIC ANALYSIS
USA: after the sudden halt in the 1st quarter GDP is ready to go.
First half of a two-speed for the United States: on the one hand, the final estimate of GDP for the first quarter has confirmed a broad contraction of the economy, the conditions seem solid for a rebound in growth in the 2nd quarter. The data worse than expected for the first three months of the year does not seem to cause concern as it related to temporary factors; the lower contribution from foreign trade and changes in stocks account for much of the contraction, while it remains solid contribution of private domestic demand. the negative result of the 1st quarter will therefore contribute to curb annual growth, but not in any way alter the prospects for growth averaging around 3% from the 2nd quarter onwards. Moreover, the growth rates seen for solid retail sales, durable goods orders and industrial production in February and March seem to support a rapid recovery of growth in the 2nd quarter. In the face of a rapid improvement in the macroeconomic scenario are still some doubts arising mainly from the real estate market and the dynamics of private investment. In order to ensure a solid recovery, the Federal Reserve maintains an approach more accommodating, although the last published reports confirm their willingness to continue the tapering (reduction in the volume of purchases) and document a lively debate within the Council with regard to the manner in which reduce monetary stimulus. On average forecasts anticipate the closing of the asset purchase program by year-end and place the first rate hikes not before 2015, probably in the second half of the year.
Euro area: weak growth and falling inflation convince the ECB to intervene
The macroeconomic framework for the euro area in the first half of the year still sees a recovery that is struggling to gain strength. After the second reading of GDP has confirmed a weak growth, the result of the acceleration of Germany and negative surprises on the GDP of France and Italy, also the first available data for the 2nd quarter disappoint expectations. In particular, there was a halt in the trend of improving business survey with SMEs (business confidence) of May, indicating a slowdown in the manufacturing sector and services, which is confirmed also by the national data, however, with the deterioration of the German confidence indicators (IFO and ZEW). Recent data have also contributed to changes in the reference scenario for the ECB, during a press conference in June, noted a trend of growth and inflation weaker than initially expected. The new macroeconomic forecasts for the period 2014-16 spread introduce downward revisions to GDP for the current year only, and with reference to the scenario of prices, including new cuts on the entire three-year period: 0.7% from 1% for 2014, 1.1% from l, 3% for 2015 and 1.4% from the 5% in 2016 President Draghi also reiterated that inflation expectations remain well anchored and that the ECB and absolutely determined to ensure the anchorage of the same expectations. In this sense they move the numerous measures announced at the conclusion of the June meeting which, together with the expected rate cut, saw several specific measures to support liquidity and credit market.
SUMMARY OF OPERATIVE ADVICES
The world economy continues on the path of moderate growth, although between individual countries remain some elements of divergence. In the United States despite the slowdown in the first months of the year, leading indicators confirm an acceleration in the second quarter, while in the euro area, compared to the improvement in the confidence indicators, the element of uncertainty remains tied to ‘political agenda of economic reforms post ejections. Mixed signals from Japan: on the one hand, the manufacturing sector and exports provide a positive impetus to economic growth, on the other hand the recent increase in the consumption tax has caused a weakening of confidence Delie families. In the emerging world of the election cycle has already returned some results, in cases like India, particularly encouraging, in others less so. From China, notwithstanding the doubts about the sustainability of the banking sector, positive signals came from the manufacturing sector. In the euro area the ECB June 5 has reduced by 10 basis points is the reference rate that the interest rate on deposits, up to the lower limit for the pattern of policy rates and announced additional monetary policy measures. The drop in interest rates above the long end of the curve benchmark brought the spread l0 – 2 years to the lowest level in 12 months. The absence of inflationary pressures and the search for yield by investors continued to favor above the longer maturities of the benchmark curve. In the USA the FOMC minutes of the April 30, published May 21, show the wide-ranging debate among the members of the committee about how to handle the future output from the expansionary monetary policy, for now undefined. The minute offer a vision of economic weakness and recovery after the first quarter; positive outlook for the medium term remain unchanged. Risks could come from the real estate sector, the slowdown in China and the tensions in Ukraine. The Fed will continue to devote significant space to the preparation of the turning rate. For now, the expansionary policy stance has encouraged the fall in yields on the benchmark curve US: although we are talking exit strategy, a rate increase is postponed to the 2015 Equity markets continued the uptrend supported by the attitude accommodative central banks. In the USA economic recovery, confirmed by recent economic data, and the prudence with which the Fed announced it would reduce the incentives of monetary policy pushed stock indices to new highs. In the euro area, despite a downward revision of growth estimates in 2014, the expectation of intervention by the ECB and the outcome of the European elections have helped to promote the positive dynamics of the markets. In the context described above, we continue to maintain a constructive attitude on the stock market, even if in the short term, we may see an increase in volatility. Within the section of the bond portfolio we believe it appropriate to reduce the sensitivity to interest rates by diversifying the investment strategies without losing the element of correlation with traditional asset classes.
STOCK MARKET
Continues the uptrend in the markets: new highs for the international indices.
The environment of risk appetite has allowed new extension to the main international indices that exceed major technical barriers and in some cases record new record levels. The confirmation of expansionary monetary policies should ensure that in the coming months to support economic growth and especially to maintain liquidity in the system that will once again conveyed to the assets most at risk such as equity, also supported by the lack of attractive alternative investments. In this context, continuing the record of US indices, with the S & P500 in excess of the medium-term target of places in 1920-1925, projecting towards the further placed in area 1960-1970. In Europe, the main lists back to 2008 levels, with the DAX record new highs. The FTSE MIB index confirms the upward trend, despite a particularly high volatility, exceeding the threshold of 22,000 points. Our index shows ample space to recover, at least in part, the strong performance gap with other European countries, thanks to the reduction of systemic risk of our country, which allows a greater propensity for risk of investors also due to the sharp decline in spreads and expectations of accelerated institutional reforms. These seem to be confirmed by the net outcome of the election, which clearly invites the Government to continue its reforms and to ask for changes to Europe, in order to implement policies of economic development at the expense of austerity. The prompt response the ECB to support the economy, after the failure “of the policy of rigor” on the part of European voters, should provide an important driver. With regard to the fundamental, are slightly lowered their growth expectations for profits in the year of the Euro Stoxx to 19.86%, with undemanding valuations despite the appreciation of the last period. The ratio of growth / multiple (PEG) remains favorable and lower to 1%.
OPERATIVE ADVICES: STOCK MARKET
An investment in the stock market remains favored one side by the context of economic growth and on the other by the flow of investors also because of the extremely low yields of bonds. in geographic terms we believe that the European market than the American is still preferable for both the feedback of nature as essential to the different attitude of the respective central banks. At the sectoral level still prefer the sectors most affected by the dynamics of global growth, particularly advise companies that are distinguished by the geographical diversification of revenues and with good visibility on sales growth and sustainability of cash flows dl. in this perspective, a viable investment opportunity is offered by the title Airbus, a French company active in aerospace and defense, and with a substantial order book and new product range offers real opportunities for corporate profit growth, with positive returns in both terms of improving the valuation multiples of that dividend policy in favor of also recommend the British company WPP, which operates diversified services of global communications, whose turnover has already registered a strong growth in 20i3 and will continue to benefit from the support given by the gradual economic recovery in the turnover of the advertising agencies, with assessments at a discount compared to its competitors in the industry.
BOND MARKET
Bonds: the ECB’s support for the peripheral
As anticipated, at its meeting in early June, the ECB has significantly enhanced the stimulus measures part in pushing beyond market expectations. The central bank lowered the reference rate corridor and pledged to keep these levels still for more than two years. This set of decisions, as well as having an impact on the exchange rate, implies on the short end of the maturity curve predictions of stable rates for the core countries (such as Germany) and in moderate descent to the periphery. More complex perspectives on the middle and long. If the ECB will convince markets of the effectiveness of its instruments, are likely to be revised upwards its forecasts for growth and inflation in the prices of securities, putting the fund in the later maturities of sovereign debt of the core countries for the consequent rise in interest rates market. Best prospects for the peripheral, thanks also to all other measures put in place to bring back the efficient transmission mechanism of monetary policy and dedicated. These tools should in fact help to reduce the dispersion of economic prospects between core and peripheral element that should translate into a compression of spreads primarily on intermediate maturities.
Corporate Bonds: the search for extra-return favors low-rated securities
Since the beginning of 2014, the corporate bond market in the euro has recorded positive total returns. The higher-rated securities have benefited from the dual effect of narrowing of spreads and lower interest rates core. On securities rated below the decline in the risk premium has been much more consistent. The most interesting element is the fact that the best relative performances have been chalked up by the very low-rated securities, where default rates are high. This phenomenon is
lends itself to a double reading: on the one hand confirms that the search efficiency is the key factor of investment choices, on the other hand raises the fear that the credit market has come into being heated, with investors showing excessive tolerance against the assumption of credit risk.
OPERATIVE ADVICES: BOND MARKET
The ECB in June has reduced by 10 basis points is the reference rate that the interest rate on deposits and announced additional monetary policy measures. While not a true turning Quantitative Easing, during the press conference said that, if needed, is willing to further unconventional measures. The medium and long stretch of the euro benchmark curve was supported by expansionary monetary policy of the ECB, the absence of inflationary pressures and the search for yield by investors. These factors still support this segment of the curve. In the USA, the publication of the Minutes of the April 30 FOMC has fostered a similar movement; despite the broad debate about the exit strategy by expansionary, it is not a change of strategy in the upcoming monetary policy.
Italian corporate sector: the required risk premium on corporate issuers to investment grade and high yield in May, little changed, remaining, respectively, in the vicinity of the minimum in January 2008 and June 2007 the technical and fundamental factors that have caused the reduction in spreads on demand corporate sector, which is the expansionary monetary policy of the ECB, the euro area’s economic recovery and default rates low, they continue to make the favorable scenario to this asset class.
Emissions subordinated financial bonds and CoCo: limited exposure within the portfolio of these instruments niche offers a yield to maturity interesting with a low correlation with movements in interest rates. Within this category European issuers are the most interesting ones. due to improving fundamentals and stress test of the ECB which should benefit.
CURRENCIES
USD: since the last Beige Book, the document on which economic decisions are based of the Fed, a picture emerges that confirms positive levels of business expansion in all districts. The Fed has kept interest rates unchanged and continue the implementation of the taper. With the economy picking up the moves of the Fed appear scontante and with them the strengthening of the dollar.
EUR: The ECB cut of 10 basis points is the rate that the interest rate on deposits networks; simultaneously announced a package of measures that ensures very articulate a strategy that will remain ultra-accommodative monetary much longer than that of the Fed and the Bank of England. The meeting met market expectations with a budgeted depreciation of the euro, which fell initially in area until 1.35.
GBP: the meeting of the Bank of England ends again without news. The cost of money and the size of the asset purchase program remain unchanged. The reaction in the markets remains the consolidation of the British pound, which is against euro against the dollar. There remains the idea that the British monetary authorities to change the policy rate since late 2014.
JPY: The latest meeting of the Bank of Japan, where it was confirmed the increase in the monetary base at the rate of 60-7omila billion yen a year, confirmed the ultra-expansionary policies in Japan. In this context and with the easing of the Ukrainian crisis, the yen saw his absence as a safe haven, so returning to weaken.
RAW MATERIALS
Energy: energy scenario remains volatile due to geopolitical tensions in Ukraine and offering the Libyan crisis. The uncertainty on the demand side of China, whose manufacturing PMI was weak in May, still leaves cautious operators. the forecasts remain guided by the moderate optimism.
Precious metals: the scenario forecast remains neutral. Specifically, it is not ruled out further weakness in gold and silver due to declining demand from emerging countries and a reduction of the former / version to risk; more likely the recovery of platinum and palladium, which are more related to the industrial cycle.
Industrial metals: from the recovery in the advanced economies result is a cautious optimism about the sector, but traders seem worried by data from China where he continued cooling of the housing market, leading sector for industrial metals, to which is added the slowdown in consumption in emerging countries.
Agricultural products: the first estimates on crops 2014/2015 led to a consolidation of the levels achieved by the agricultural markets, confirming the optimistic forecasts for the sector. The global scenario does not bode elements of tension at the moment but it remains to monitor the Ukrainian crisis, given the country’s role in the trade of grain.