SUMMARY OF THE MACROECONOMIC INFORMATION
The macroeconomic scenario
GDP slightly higher than expected in Europe
The preliminary estimates for GDP in Europe show a recovery in Q3 slightly firmer than expected but the confirmation of some elements of structural weakness confirm the still uncertain prospects for the European economy. The higher than expected growth of GDP in Q3 confirms instead the prospects of solid growth for the US cycle.
The stock market
New highs on the price lists USA
US indices recorded yet another all-time high in the wake of quarterly and macroeconomic data, while the European markets are confirmed more volatile. In contrast, the formal step of ECB President Draghi toward a future program of purchase of government securities and the rate cut by the Chinese authorities have restored the risk appetite of investors.
The bond market
Government bonds still supported by the ECB
The reaction of the ECB to the disappointing data should provide a solid anchor for the market European government in the coming months. The situation in Greece does not appear to raise concerns systemic. The dissemination of the results of the stress tests has led some volatility, but did not change the orientation moderately positive investor sentiment towards the banking bonds.
Currencies
Fed and US cycle support the dollar
Exchange market scenario quite clear: the dollar consolidated its upward trend, thanks to the restrictive expectations on Fed and good cycle USA. The euro is set to fall after the words of Dragons on the possible launch of quantitative monetary policy extended to January. Early elections, rating downgrade and the Bank of Japan will support the structural depreciation of the yen.
The raw materials
The recovery still weak and the strong dollar accentuate the weakness of commodity
No sign of stopping losses on the resource base, while expanding the growth divergence between the US and the rest of the industrialized world. The markets have become nervous after last week, OPEC announced that it will cut production despite the excess supply that creates imbalance on the oil market.
Macroeconomics
USA: the good performance of the economy
Preliminary data on GDP in Q3 surprise upward expectations, albeit at a slower pace than the previous period, and confirm robust growth for the US economy. If in fact the 4.6% annualized quarterly Q2 is mainly explained by the large rebound in consumption and production after the weak start of the year, is still the robust + 3.5% in the summer which is supported by the channel abroad and by a recovery in public spending. GDP thus closes the first half with the strongest growth rate of the past decade despite being lower than expected contribution of consumption and even negative than in stocks. In terms of price scenario, the latest numbers on inflation showed a trend slightly stronger than expected while leaving the index of consumer prices in September to below the 2% target. The Fed estimates that in the short term inflation will be braked by the negative impact of energy prices and other special factors, although in the medium and long term H price trend is expected to return to converge towards the target.
Euro area: GDP better than expected but structural weakness
Preliminary data on GDP in Q3 show an evolution marginally better than originally expected, but still confirm a framework extremely weak, with Italy that remains in recession and the growth of the German firm rates close to zero. If the synthetic figure in the euro zone is observed not only an expansion higher than expected in the third quarter but also an upward revision of the previous data, at the national level to lead the rebound shy were a return to growth in Germany and the recovery of the French GDP. The second European economy has seen, in fact, a return to expansion after a first half of stagnation, although there were the strongest growth rate last year. In Italy’s case, instead the change in GDP is confirmed in negative despite a marginal improvement. II detail the components of GDP shows how the improvements, both in France and Germany, are related to the dynamics of domestic demand and, in particular, to consumption. If the German figure, the increase is driven by household spending and, secondarily, by the increase in net exports, to France, in addition to the positive contributions of consumption and export, it counts in addition also the favorable dynamics of the inventory cycle . It therefore seems a recovery really weak and short of breath that in place, even more so when you consider the brakes entailed by high unemployment and inflation profile. The ECB recognizes the cyclical slowdown and inflation lower than expected and, in fact, at its December meeting confirms the possibility of a further instruments. The announcement of a quantitative monetary policy extended to government bonds has not happened, but it appears increasingly likely at the next meeting on 22 January.
SUMMARY OPERATING ADVICES
Two of the key elements to comment on the current market environment is the divergence between the various geographical areas and the general slowdown in real economic activity, particularly in the euro area where macroeconomic fundamentals remain weak, the level of confidence of consumers and investors is fragile and this continues to result in lower consumption and investment. In the US, the scenario is much more favorable with positive indications from both the consumer sector that from manufacturing. Still conflicting directions from the emerging world, especially from China, with the slowdown of some leading indicators: the doubts about the sustainability of the growth rates of the second world economy prompted the central bank to reduce the cost of money.
The European Central Bank during the monthly meeting December 4 has renewed willingness to use more unconventional measures of monetary stimulus if real growth and inflation should continue to surprise on the downside; Draghi said in particular that it is not necessary to the unanimous vote of the board of directors for the possible introduction of such measures. The ECB also lowered its estimates of growth and inflation for the next year. in this context, the yields on the US bond curve is that of countries in the euro declined across all maturities not monetary. This movement of reduced yields in recent weeks was more pronounced on the curves of the peripheral countries. The main stock markets in recent weeks, showed positive performance, supported both by the search for excess return than for bond either by better than expected results from the season of corporate reporting. On a medium-term time horizon confirm a moderately positive view on equity markets that continue to benefit from the high liquidity in the markets. However, in a scenario of increased volatility due to the deterioration in the outlook for growth in some areas and the persistence of geopolitical unrest, suggest consolidate selectively gain some positions and allocate the cash from of non-directional strategies.
STOCK MARKET
Stock market volatile but trend still favorable
The European equity remains extremely volatile and heavily influenced by the monetary policy of the ECB. The words of President Draghi have partially disappointed at the lack of precise timing on the proposed Quantitative Easing (with purchase of government bonds), but then they also provided many details and clarified some points on the possible level of monetary easing . Now equity markets look to the forthcoming scheduled for 2015. From a sectorial point of view in Europe continues the downward energy sector on the weakness in oil prices which, however, benefits the airline stocks that see a reduction in the cost of fuel. The tourism and leisure sector benefits from the upward revision of the objectives of profit at the end of the year, low cost airline Ryanair. Trend little changed for the insurance industry after the outcome of the stress tests carried out by the European insurance and pensions (EIOPA) on a significant sample of leading companies. Remains at the center of interest from the telecommunications sector involved a process of rationalization and acquisitions. Weak pharmaceuticals after the announcement of a restructuring of the commercial division of the giant GlaxoSmithKline. Little changed even the luxury segment affected by the persistent depreciation of the yen against major currencies. Wall Street meanwhile renews historical highs, supported by a number of encouraging macroeconomic data and low bond yields that investors still push towards equities, with the S & P500 reached well above 2,000 points. The solid economic growth fuels the prospects for further improvements in corporate earnings, with the low costs of raw materials, especially energy, which should have a positive impact on profit margins. At the sectorial level in the United States continue to drive the cyclical; the auto show relative strength, supported by new sales data for November. Retail is braked by the preliminary data relating to sales in the first weekend of start of the Christmas season: according to the National Retail Federation, US consumer spending was 50.9 billion dollars, about 1% less than the figure for the same period in 2013. This negative surprise, however, is offset by an equal to 17% of online sales in the usual Cyber Monday, the Monday of online purchases. Maintains the relative strength of technology, while energy and telephone continue to present weakness, confirming the worst sectors in terms of performance in the last month.
STOCK MARKET OPERATING ADVICES
We believe that the factors that in recent months have supported equity markets will continue to be valid even in the early months of 2015 and why we continue to maintain a moderately positive attitude on this type of investment. These factors, in particular, are linked to an attitude of monetary policy yet to support riskier asset classes, performance in progressive compression downward on the bond markets and corporate valuations still affordable. The elements mentioned above are particularly reflected on European stock exchanges, which should continue to benefit by the recent movement of depreciation of the euro against the dollar.
In the short term any negative surprises on the macroeconomic front and/or monetary policy could fuel even temporary increases in volatility and for this reason we should be diversified equity exposure within portfolios with alternative investment solutions and characterized by a low correlation compared to traditional asset classes.
BOND MARKET
Government bonds: the ECB another signal next purchase
At a press conference in early December ECB President Draghi has tried to give more visibility on future moves of the central bank with a difficult balancing act, signaling more directly the likely launch of a new stimulus program in the first part of next year and binding upon the occurrence of certain conditions, without giving details. The ECB in its meeting of 22th January reassess the measures already in place – purchases of ABS and covered bonds and TLTRO – in the light of the two “goals” intermediate repeatedly mentioned by the President:
1) the expansion of the ECB balance sheet up to the level of early 2012, ie 3000 billion euro and
2) inflation expectations implicit in market prices.
To date remains some doubt on the possibility that the ECB will achieve the target of budget indicated in two years repeatedly cited by Draghi as time reference. Moreover join the projections of inflation may be heavily influenced by the price of oil, a subject on which Draghi appeared particularly concerned.
Corporate bonds: the default rate remains low
The default rate for speculative issuers continue to remain at very low levels. The 3rd quarter of 2014 ended with a default rate of 2.1% (1.7% in the US and 2% in Europe, 2.8% and 4%, respectively, at the end of Q3 2013). In relation to European issuers, Moody’s estimates that 2014 will close with an even lower area in 1.5% – 1.6%. With reference to the outlook for securities corporal, the macroeconomic scenario Europe that lies ahead for 2015 with a GDP growth remains at a modest (about 1%, according to latest estimates Intesa Sanpaolo), and a monetary policy geared so accommodating should keep rates on values and compressed spreads on values also quite low. The risk of a rise in interest rates linked to those USA is currently limited: the differences in terms of the real economy and monetary policy I favor one “decoupling” of European rates than Americans.
BOND OPERATING ADVICES
2014 was an amazing year for bond markets: while most investors expect a rate hike thanks to the US economy more robust, these are actually decreased (the ten-year Treasury yield was 3% at the beginning 2 years and 16% at the end of November), thereby enabling the traditional fixed income strategies to generate good results. Even in recent weeks prices in the bond market were supported by a weakening in the overall macroeconomic framework, prospects for monetary policy still accommodating and downward inflationary pressures in the short and medium term. In the early months of next year this context is set to continue, although the prospects of a policy of rate normalization in the United States and England, and a return of volatility in bond markets make it necessary to reposition the portfolio by reducing the correlation with traditional asset classes and sensitivity to movements in interest rates.
Flexible strategies: in the last few months we have continued to assist in the movement of progressive yield compression on all the main sectors of the fixed income. This, combined with the variation of the monetary policy stance of the major central banks, makes it necessary to use investment solutions characterized by an extremely active and flexible management regarding the allocation of capital among the different sectors of the fixed income securities in order to seek the best return opportunities.
CURRENCIES
USD: the Beige Book, preparatory document for the meeting of the Fed’s December 17, paints a positive picture, with prospects for expansion and improvement in all sectors of the US economy and the labor market. The favorable economic prospects for further feeds strengthening dollar.
EUR: ECB Draghi last meeting has tried to give maximum visibility on future moves of the institute, pointing out as explicitly as possible the likely start of the new stimulus program in January 2015. The result is a likely consolidation in the euro pending the actual announcement of the plan.
GBP: the last meeting of the Central Bank of England was closed again without news. The Bank of England has in any case revised down its projections of inflation and growth, implying a postponement of the first rate hike that is still intended to contribute to a pound still strong.
JPY: the dissolution of the Japanese Lower House, decided last November, weighs on the internal. The last meeting of the Bank of Japan is expected for the year on December 19 and should not be surprises, with the yen will continue in its path of strong devaluation, fueled by the recent downgrade by Moody’s.
RAW MATERIALS
Energy: while surprising the market with non-cutting production, OPEC’s decision was already partially metabolized. Despite the geopolitical turmoil (Libya, the picture the West-Russia-Ukraine and the response to ISIS) the effect of the decision OPEC seems to have had the upper hand, feeding the fall in prices.
Precious metals: the frame of reference on the precious remains critical, mainly because of the lack of reaction of gold and silver both in geopolitical tensions and rising risk aversion, that the stock market volatility. The disinterest of investors results in a moderately negative tone for the sector.
Industrial metals: despite the rate cut by the Central Bank of China, the metals recovered only slightly from the lows of 2014. The fund remains strongly influenced by the criticality of the main buyer in the market that seems however oriented to increase the economic stimulus to revive the pace growth.
Agricultural products: the fund recovers even after the release of the WASDE report last month, which reconfirms yields and stocks on the rise, while outlining a less dark precedents and allowing prices, dropped a lot, to continue the recovery. However it does not change the climate of expectation and caution on the Sector.