SUMMARY OF THE MACROECONOMIC
Continued divergence between the United States and Europe The string of data spread in recent weeks confirms that the critical stage for the economy in the euro area, even for the countries deemed most solids such as Germany. The American data, however, confirm the solid when the economy is experiencing a phase antithetical to that of Europe.
The stock market, the ECB raised the bags The decision of the ECB to reduce interest rates and, ultimately, to inject liquidity in the markets, says equity markets, despite the disappointing economic data in Europe. The prospects are still favorable at the moment, despite volatility to remain high, accomplices geopolitical risks and the weakness of the European economic cycle.
Bond Market
Long-term rates down, except the German decision to cut interest rates by the ECB has resulted in a decline in rates of return on European government bonds on short maturities, but longer maturities German bonds marked a rise, on wake of expectations of recovery. The spread BTP Bund is near new lows since 2011.
Currencies
The ECB intervenes and weakens the euro after the ECB decision the euro / dollar fell quickly under 130, strengthening even further our scenario of a strengthening of the USA towards the single European currency, in line with the divergent strategies Fed and the ECB which now seem clear. The strengthening of the American currency is therefore likely to continue.
The raw materials
It reinforces the climate of caution on commodities continued volatility in energy due to geopolitical tensions, but the pressures on the supply side collide with a weak demand for oil and do not allow a rise in prices. Volatility for precious metals, thanks to the ups and downs of risk appetite in the markets.
MACROECONOMIC ANALYSIS
USA: sound economic framework The American economy remains in good growth, supported by various stimulus factors, from the dynamics of consumption thanks to an increase in labor income and sales in marked expansion in the auto industry. At this factor you should also add a recovery in investment, both from the business side that in the residential sector. After the break seen between late 2013 and early 2014, construction companies now collect an increase in demand and return signals an upturn in activity. Also positive was the content of the data on the labor market that show a solid employment growth and an unemployment rate in rapid decline. continued progress observed also stimulate a timid recovery in wage growth. The effects of the ongoing normalization also translate into a rise in inflationary pressures, with recent data showing growth rates of rising prices, dispelling fears of excessive disinflation. Two other important factors to support the growth comes from fiscal and monetary policy. The absence of conflict in Congress seems destined to last at least until the autumn elections, while the federal deficit there is a path of virtuous reduction. Continues to be extremely expansive approach of monetary policy, the Fed will start at the end of the process of reduction of purchases of securities by the end of year but still talks about the next moves. What seems certain right now is that the next steps will depend on the macro data and ii FOMC seems willing to accept a temporary overshooting inflation target for the achievement of the employment.
Euro area:
The ECB surprised markets with a rather unexpected move, the Executive Council of the ECB has carried out a further filings (0.1%) of all the rates, after the cuts already made in June. The Refi rate touched a new low at + 0.05%, while the corridor set by the ECB sees the marginal lending rate (for corporate actions) to 0.3% and the deposit rate into negative territory at -0.2% . During the press conference Draghi has shown that the rate decision was not unanimous, but was adopted by a large majority. The governor also made it clear that with this new filings the minimum rate has been reached and that, at this point, it is technically impossible to do more in relation to the level of interest rates. The decision is to be connected in addition to the content of the widespread economic data in recent weeks also, and above all, to the fact that all indicators of inflation expectations over the medium / long term have worsened, disallineandosi the 2% target set by the ECB . Dragons, on the occasion of the symposium in Jackson Hole, had already highlighted the concerns of the Central Bank about this phenomenon which heightens the risk of a deflationary scenario type. Moreover, the decision of the Executive Council wants to act as an incentive to European banks to borrow all the funds needed since the rates do not fall below the levels reached today.
SUMMARY OF OPERATING TIPS
The theme of the economic divergence between! Different geographical areas and continues to characterize the global scenario. In the United States the leading indicators and the trust confirm the positive momentum of the world’s largest economy after the slowdown in the first quarter while in the euro area in recent weeks, there has been a deterioration in the situation: a critical factors such as high unemployment and downward pressure on inflation expectations were added to the geopolitical tensions that have impacted particularly on! confidence. In Japan, households are struggling to show a recovery after the recent fiscal austerity measures while in China the leading indicators paint a context of stabilization of growth. The divergence is expressed also in the different attitude of the monetary policy of major central banks: this factor will continue to affect the dynamics of the financial markets in the coming months. The ECB September 4 reduced the benchmark rate from 0.10% to 0.05% and the deposit rate to -0.10% to -0.20%; also announced a program to purchase a broad portfolio of Asset Backed Securities. and Covered Bonds. The new expansionary measures have been adopted by vote not unanimous, in the light of the deterioration in estimates of the risks of inflation and worsening economic scenario. The Fed, in the meeting of 30 July, confirmed improvement in the economy by announcing a further reduction in monthly purchases of securities. Pending the meeting of 17 September, the publication of the Minutes of the Committee of July has added important details. And ‘in fact showed a gradual shift of the views of members to the option of rising interest rates: the Fed’s next decision will then be guided primarily by data on the labor market. Despite the worsening economic situation and the continuing geopolitical tensions, which have particularly affected the European indices in the first half of August, equity markets have registered a dynamic overall positive. in euro area support has come from the expectations of new stimulus measures by the ECB, while in the USA the solid signs of economic recovery have pushed the price lists to new highs. in this scenario, we remain moderately positive on the stock market, however, the possible continuation of the negative effects related to the crisis in Ukraine, suggests a selective profit taking by allocating the cash from in order to leave unchanged the weight of equities in the portfolio.
STOCK MARKET
The liquidity drags upward bags After the phase of volatility that has characterized the end of July and part of August, equity markets have benefited of weakened, at least temporarily, of the tensions in Ukraine and the unexpected drop in interest rates, operated by BC And in early September. And this despite the worse than expected economic data which refer to the fears about the recovery in the zone Euro and the European quarterly some conflicting confirm the findings with the results of the first three months of the year, or a corporate framework still affected by the weak economic recovery. in this context, the European Squares have taken place, especially in those countries judged to be more fragile as Italy. The ECB is therefore deemed credible in the ability to lift the economy and markets, thanks to unconventional measures, such as the purchase of covered bonds and securitized (ABS), details of which will be announced in early October. The provision of liquidity, resulting from purchases of securities by the ECB, is in fact destined to end up at least partially also in the financial markets, supporting prices of the main activities. Unlike direct measurements of enterprise financing (such as TLTRO) purchases of securities by the Central Bank is not subject to any specific use of cash received from banks and investors, resulting in a de facto increase in liquidity in the markets, which could potentially even go in the bags. The assessments, however, do not appear excessive, especially in the United States where the corporate results are better and the economic growth feeds the good performance of the company accounts. Despite H favorable trend in the last period, the stock market volatility, however, is likely to remain high, as there remain several factors brake as geopolitical risks and the weakness of the economy of the continent. This trend should cover in particular the home directory, which has a composition of greater weight for the typically more volatile sectors such as banking.
OPERATING TIPS: STOCK MARKET
The different attitude of monetary policy between the Federal Reserve and European Central Bank, the recent appreciation of the USD against the EUR and relative valuations are elements that continue to support the investment in European markets. Extraordinary measures of monetary policy in the euro area should facilitate the resumption of the cycle and support the activities of companies operating globally that will benefit from the growth in demand and the progressive weakening of the sole, determinant of the growth in revenues. At sectoral level, we maintain a positive outlook on consumption sectors, pharmaceutical and industrial, which have multiple evaluative interesting in the light of the correction in recent months and we reiterate our preference for international groups with greater exposure to developed countries and with a flow generation constant cash and sustainable in the medium term. In a context like the present, with elements of geopolitical uncertainty, we recommend you diversify your portfolio by investing characterized by a sensitivity to market smaller than directional.
BOND MARKET
Bonds: continues the “division” of the markets in the United States, where the economy is on the road to recovery self-sustaining and inflation, albeit below the target, not of particular concern downward, the Fed began the exit strategy progressively reducing purchases of securities and looked forward to the first rise in interest rates for the second half of 2015 This scenario is reflected in the negative outlook for the United States Government. The scenario is quite different in the swear – where growth and inflation remain too low and still uneven between countries – where the ECB is accelerating on the road much of the expansionary measures in the coming months, in sharp contrast with the Fed, and probably also with the Bank of England, will implement a program to purchase asset-backed securities. This scenario results from today to the end of the year in a move to steepening of the yield curve. Short-term rates are expected to remain stable and rise only moderately long-term rates. The scenario appears to be more favorable for bonds issued by peripheral countries in the euro. The continuous reduction of the premium for the risk associated with the debt crisis combined with the prospects in terms of monetary policy should in fact support a reduction in the spread, the less extensive the segment of short-term securities and most significant securities with longer maturities.
Corporate Bonds: ECB ready to buy ABS addition to further reduce all rates, the ECB decided to also buy asset-backed securities (ABS), with certain technical characteristics in terms of simplicity and transparency. The ECB will also to buy, starting in October, also covered bonds, but the details of these operations will be f at the next meeting. ! The mix of measures put in place d ECB -TLTRO (condition funding the provision of credit), direct purchases of ABS and covered bonds – to re-launch the credit, boost growth and bring the price level in the vicinity of the target 2%, it is at this point really large even if the Governor did not provide further details unbalanced in the size of the amounts that will be shopping for ABS and covered bonds. On TLTRO is already known that the size will be up to EUR 400 billion for the first two operations in September and December 2014.
OPERATING TIPS: BOND MARKET
In the euro area the significant reduction in yields, which affected especially at longer maturities, was favored especially by the new expansionary monetary policy by the ECB announced on September 4. The publication of statistics that paint a picture of weak growth in the core countries and signs of recession in the peripheral countries, together with a reduction in inflation expectations in the medium term have provided additional support to the sector.
In the USA, despite a similar fall in yields on the yield curve, the debate about the Fed’s exit strategy and the return of inflation to the target of 2% vice versa create an environment less favorable to bonds.
Corporate Bonds: the search for extra-efficiency has led in recent weeks, the prices of securities at levels at historic highs, to suggest profit taking especially on emissions with short maturity and media for the different taxation than that of government issues.
Flexible strategies: reduced yields in all major sectors of the fixed income and the different attitude of monetary policy by major central banks, make it necessary to diversify in a flexible and dynamic exposure to exchange rate risk and interest rate .
CURRENCIES
USD: after the words of Yellen to Jackson Hole and the actions of many of the members of the board of the Fed, seems closer than initially anticipated the turning point for the path of interest rates and the normalization of monetary policy. The United States dollar is benefiting from this framework, extending the gains to all major currencies.
EUR: the strong reaction of the euro since the last ECB meeting, which brought rates to historic lows. The single currency fell below 1.30 against the dollar, that decline is confirmed inserted in a framework of structural weakness, driven by the choices of the Central and simultaneously force the American economy.
GBP: The market continues to consider it probable that a change in the expansion policy of the Bank of England only in 2015 but not before, given the stalemate of the last meeting. This scenario does not reverse the strength of the pound, despite the consolidation of the past few weeks, reflects a change of course in a restrictive sense.
JPY: in the context of a mild return of risk aversion, which favors a retracement of the yen, remains a basic scenario that sees the structurally weak currency on joint action of the Bank of Japan and the Japanese government. The focus moves to the meeting of the Central Bank in October.
Raw materials
Energy: more volatility in energy due to geopolitical tensions. At the Ukrainian question add up tensions in Iraq and threats of ISIS to the oil terminals in the south of the country. Any interruption of supply would exert a strong downward pressure on the supply with the demand for oil in the world that still appears weak.
Precious metals: the rise of June / July, dictated exclusively by the increase in risk aversion in the markets, has led operators to place themselves on the defensive asset, but it was quickly reabsorbed in August / September sanction without a real change of direction of sector, whose performance is dependent on the risk appetite in the markets.
Industrial metals: the actual consolidation is the result of the data from China. The numbers, though far from the highs of recent years, reporting a hold of the Chinese cycle that is reflected in the demand for metals, despite a slowdown in the housing market, their main area of use.
Agricultural products: continuing the reversal of prices from the highs of 2014 The publication of the latest statistics summer by the United States Department of Agriculture confirms estimates upward in 2014-15 harvests resulting increase in reserves. The picture does not appear, therefore, favorable to the prices of grain.