BNY Appoints José Minaya as Global Head of Investments and Wealth

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José Minaya will assume the role of Global Head of BNY Investments and Wealth on September 3, the firm announced this Tuesday. In his new position, he will report directly to President and CEO Robin Vince. Additionally, he will be a member of the company’s executive committee, succeeding Hanneke Smits, who is retiring after leading the company for several years.

“BNY manages money, moves it, and keeps it safe, and since the global wealth segment continues to grow rapidly, we are uniquely positioned to serve clients throughout the financial lifecycle,” Vince said in the company’s statement.

Minaya joins BNY from Nuveen, where he served as President and Chief Investment Officer, overseeing all global operational and investment activities in equities, fixed income, real estate, private markets, natural resources, alternatives, and responsible investments.

Minaya also has extensive experience at firms such as AIG, Merrill Lynch, J.P. Morgan, and TIAA.

He is a member of the Board of Trustees of Manhattan College and the Advisory Board of the Amos Tuck School of Business at Dartmouth, where he earned an MBA.

“I am delighted to join BNY, a historic institution with a legacy of helping clients achieve their ambitions and advancing the future of finance,” Minaya said. “Leading a world-renowned asset and wealth management franchise with deep relationships around the globe is an exciting challenge for me.”

Minaya’s appointment comes at a time when BNY is expanding its presence in the global wealth market.

Increasing the Appeal of British Equities: One of the Challenges for Labour as They Return to Power

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As the polls predicted, and pending the official results, the leader of the Labour Party, Keir Starmer, has won a landslide victory in the UK elections, ousting the Conservative Party after 14 years in power. According to early analyses from international managers, this victory brings clarity and stability to the markets, but Starmer will need to implement significant reforms, control inflation, and earn investors’ trust.

Rishi Sunak’s decision to call an early election has not paid off, leading to his resignation as the Conservative Party leader. Sir Keir Starmer is set to become Prime Minister. “Stock markets might have been alarmed at another time by a Labour government. However, there are two reasons why things are different this time: the party itself has significantly moved towards the center of the political spectrum, as indicated by its policy statements and manifesto; and secondly, investment markets have power over governments reliant on bond market funding. If Labour decided to further increase the UK’s budget deficit, a similar reaction in the bond market would likely occur,” points out Simon Gergel, Chief Investment Officer for UK Equities at Allianz Global Investors (AllianzGI).

PIMCO explains that the election outcome could affect the economy in two key areas: influencing economic demand through fiscal policies and enhancing long-term growth via supply-side policies. Peder Beck-Friis, an economist at PIMCO, notes that markets haven’t reacted much to this Labour victory, but they remain focused on growth, inflation, and monetary policy.

“Although the UK’s headline inflation has returned to its 2% annual target, core inflation remains high at 3.5% annually. We expect core inflation to continue falling as inflation expectations are anchored, the labor market has gradually relaxed, and fiscal policy remains tight. We also anticipate the Bank of England to start cutting rates soon, possibly in the upcoming August meeting. Looking ahead, financial markets expect rate cuts in line with the US Federal Reserve. However, we see the possibility of faster cuts in the UK due to low growth and strict fiscal policies,” says Beck-Friis.

Increasing the Appeal of Equities

For Ben Ritchie, Head of Developed Market Equities at abrdn, one of the new government’s main priorities should be increasing the appeal of British equities for domestic and international investors. “One of the quickest and most effective ways to achieve this is by removing the stamp duty on British stocks, making the UK more competitive, rewarding savers, and attracting much-needed foreign investment,” he notes.

According to Ritchie, Labour’s pro-growth agenda is key to generating the tax revenue needed to fund public services, with private capital playing a vital role in supporting investment. “If the new government gets it right, the companies most exposed to the British economy will benefit, boosting morale for companies in the FTSE 250 and FTSE Small Cap. With a little more patience, investors could finally be rewarded,” he adds.

Matthew Beesley, CEO of Jupiter AM, states that the British market has solid underlying fundamentals and is trading near historic highs. However, at the same time, valuations of British stocks are at historic lows due to political uncertainty in recent years. “There are many reasons to expect the new government to initiate a period of political stability, prioritize the Edinburgh reforms, and take responsibility for a clear industrial growth strategy that consolidates the UK’s recovery and makes it a key focus for international investors again,” he says.

Mark Nash, Huw Davies, and James Novotny, investment managers in the Absolute Return Fixed Income team at Jupiter AM, believe that Labour will have to convince both the market and the electorate that they are fiscally prudent while improving the poor state of British public services and the anemic productivity and growth profile, which they warn “won’t be easy.”

What to Expect from Gilts

For Jupiter AM managers, growth will be their “get-out-of-jail card,” easy to say but hard to deliver. “They are likely to place their hopes on a better trade deal with the EU to reduce border frictions and also on the liberalization of UK planning laws. If successful, this could rekindle hopes for greater growth in the UK and less inflationary pressure. Despite the UK’s fiscal position, we believe gilt yields seem cheap compared to other countries with weak fiscal positions (e.g., France), so it is very likely that there will be some flows into gilts from other troubled sovereign bond markets now that our elections are over,” they argue.

They also note that “Labour’s victory means we have entered a period of relative stability in British politics. The UK could well appear as a haven of political stability, a landscape very different from the years following the Brexit referendum.”

Gordon Shannon, manager at TwentyFour AM (a Vontobel boutique), adds: “British treasury bonds, gilts, remain almost unchanged across the curve today, demonstrating that Labour’s landslide victory was well anticipated. From a fixed-income market perspective, Labour’s fiscal and spending policies equate to the status quo, so we do not expect any internally generated political volatility this year. Instead, the market will continue to focus on the inflation path and interest rates.”

As PIMCO’s economist points out, the forecast is for the Bank of England to cut rates. Therefore, Beck-Friis believes that gilts are currently trading at attractive levels, “especially compared to US Treasuries.” He adds, “Across the curve, we still believe that intermediate rates are the sweet spot for taking positions in interest rates.”

Impact on Industry

Lastly, from abrdn, Christian Pittard, Head of Closed-End Funds and Corporate Finance Director at the manager, reminds that the new government must “urgently” consider fixing the cost disclosure rules that are hindering the closed-end fund sector in the UK.

“There is nothing to lose and much to gain, at zero cost to the public treasury, while boosting investor confidence and investment in the UK. Closed-end funds are an essential source of capital for major real estate, specialized equity, infrastructure, and renewable energy projects, which, according to political consensus, are necessary to drive the country’s growth,” he points out.

According to Pittard, the “misleading and unhelpful” cost disclosure rules for investment funds are “strangling investment” in these productive areas and must be addressed immediately. “Reforming the UK’s capital markets cannot be done without solving this puzzle, given that the sector represents around 36% of the FTSE 250, according to the London Stock Exchange,” he adds.

From abrdn’s perspective, this reform must go further and promote a national culture of saving and investing that brings even more capital to grow our economic pie. “The stamp duty on British stocks and UK-domiciled investment funds has distorted capital flows, putting the UK at a competitive disadvantage compared to its international peers and further hindering economic growth. By cutting this unfair and distorting tax, the new government could make significant strides towards creating the healthy and competitive investment environment the country so desperately needs,” concludes Pittard.

70% of the Capitalization of Global Equity Markets Will Be Influenced by the Upcoming Elections

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The election calendar remains very active. France held its first round with a victory for the far-right National Rally party, led by Marine Le Pen and Jordan Bardella. In the United Kingdom, citizens will go to the polls next Thursday, July 4, to decide whether the Labour Party will take control of the government after 14 consecutive years of Conservative rule. In the United States, Joe Biden’s suitability as a candidate is in question after losing the electoral debate to Donald Trump last week.

In this context, Greg Meier, Director of Global Economics and Strategy at Allianz Global Investors, reminds us: “Investing based on political expectations can be a mistake, as evidenced by the 2016 U.S. presidential elections. When the results were announced on the night of November 7, the markets initially panicked, with S&P 500 futures falling by as much as 5% in overnight trading. However, when the spot market opened on November 8, the losses disappeared, and by the close, stocks were up 1.2%.”

Saira Malik, CIO of Nuveen, notes that more than 70% of global market capitalization will be influenced by economic and political changes resulting from elections in countries such as France, India, Mexico, South Africa, and the United Kingdom. She emphasizes the importance of not ignoring the outcome and impact of these electoral events.

“This has been a busy election year outside the U.S., and there is still much more politics and persuasion strategies ahead, of course, also in the U.S. By the end of 2024, when all electoral processes have concluded, more than 4 billion people—representing nearly half of the world’s population and 57% of global GDP—will have participated in national elections throughout the year. The implications for investors are crucial, as approximately 70% of global equity market capitalization will be influenced by economic, trade, regulatory, governance, and socio-political changes these elections could trigger in the coming years,” she explains.

According to her analysis, there has recently been a clear shift to the right in the European Parliament elections, which has been a significant blow to centrist parties governing some key EU member states. “Dissatisfaction with the sluggish European economy has intensified, so French nationalist-populist parties could gain more power. Similar threats have materialized in places as diverse as India, Mexico, and South Africa. These elections, although already held, will help define the political path forward. And it is expected that the July 4 elections in the United Kingdom will end 14 years of Conservative Party rule, with consequences for developed markets in the second half of 2024. Beyond the elections, it is worth monitoring geopolitical risks, such as the recently signed defense pact between Russia and North Korea,” she notes.

Malik adds that although politics and geopolitics can always generate greater uncertainty, “in the current market environment, we see compelling reasons to consider investment opportunities in certain non-U.S. equity markets.”

First Round in France

So far, based on the results of the first round of elections in France, the European market has reacted positively. In fact, the euro surged close to the reference level of the last semester near 1.08, while CAC 40 futures rose by nearly 3%.

“It would not be surprising to see French banks start to register gains. For example, Societe Generale shares dropped by nearly 20% last month. The fact that the far-right did not achieve an absolute majority, leaving everything open for the second round next Sunday, July 7, has been well received by the markets, with the French risk premium dropping by 7 basis points to two-week lows,” says Juan José del Valle, Head of Analysis at Activotrade SV.

According to Del Valle, European futures started the week with strong gains following the first round of elections in France, where Le Pen’s National Rally won the legislative elections for the first time with 34.2% of the vote (despite not having an absolute majority). The CAC 40 begins the second half of the year opening with a +2.5% rise, with investors closely watching the final result and the resulting fiscal policies of French finances.

Regarding the results, AXA IM Chief Economist Gilles Moëc states that the outcome “arithmetically puts an absolute majority out of reach” for Macron’s party. He also believes that a potential moderate coalition government would be “constantly at risk of being halted by a motion of no confidence,” complicating economic management. In this regard, Gilles Moëc analyzes the possibility of resorting to the ECB’s TPI special assistance program but warns that “a government could hardly expect to benefit from ECB intervention if the market is rationally responding to specific political decisions likely to worsen the trajectory of its public debt” and notes that the TPI will not be a tool to stop crises, but to mitigate them.

For now, in France, exit polls from the first round point to results generally in line with expectations, so the markets are likely to temporarily breathe a sigh of relief. “The risk of a left-wing majority seems to have been avoided, which alleviates the worst market fears about uncontrolled spending. However, we are not out of the woods yet. The National Rally (RN) has exceeded expectations and could garner enough votes in the second round for a relative or even absolute majority. In summary, the only certainty is uncertainty. OAT bonds may adjust slightly against bunds, but only to a certain extent, as France’s future remains unclear, and political risk is high. The reduced risk of contagion should support non-French European sovereign debt,” argues Alex Everett, Investment Manager at abrdn.

United Kingdom

Although the French elections will remain in the spotlight for many investors, with the second round scheduled for July 7, it should not be forgotten that the United Kingdom is called to the polls this Thursday, July 4. According to analysis by Martin Wolburg, Senior Economist at Generali AM, part of the Generali Investments ecosystem, the Conservatives have governed the country since 2010. However, the polls overwhelmingly show a shift from a center-right government to a center-left Labour government. He acknowledges that it is very likely the upcoming elections will give Labour a comfortable majority.

“The fiscal balance will improve with the current government’s fiscal plans, but as the average public debt rate is unlikely to match nominal GDP growth, the debt-to-GDP ratio will rise to 110% by 2029, according to the IMF. Labour’s fiscal plans do not seem very different from the current ones, suggesting that the projected debt trajectory will not change significantly. Obviously, with a large majority, Labour might be tempted to follow a somewhat more expansive policy than in their manifesto. But we believe the lesson has been learned from the 2022 Truss mini-budget crisis, and investors have good reasons to focus more on the outcome of the French elections,” argues Wolburg.

For Jon Levy, Global Macro Strategist for Europe at Loomis Sayles (Natixis IM), investors should anticipate that the pound will reverse its weakening trend given the likely large Labour victory. He explains that Labour intends to play the long game, being tactical with borrowing and fiscal policies while seeking political levers that facilitate strategic long-term investments to boost productivity, trade, and energy security.

“If Labour manages to advance these goals, we believe investors should anticipate that the pound will reverse its weakening trend. The pound has experienced a prolonged decline against the dollar, significantly depreciating after the global financial crisis (GFC) and again after Brexit. It weakened further as the post-Brexit regime moved away from a customs union to a less favorable configuration for the UK. The exchange rate may partly reflect low expectations for the UK’s economic prospects,” Levy argues.

In his opinion, this creates a low bar and suggests potential for improvement if Reeves’ framework for enhancing growth, trade, incomes, and energy security proves at least modestly successful. “The burden of proof lies with the next government, but they may benefit from favorable tailwinds. If the polls are correct, Labour will have considerable political power,” he concludes.

U.S. Post-Debate

Lastly, the U.S. is still dealing with the aftermath of the presidential debate between Biden and Trump, which has shifted the odds in favor of a Trump victory in the upcoming U.S. presidential elections. “The tightening of trade policies, including increased tariffs, and tax cuts in 2025 are becoming more likely, and in anticipation, the U.S. dollar has risen. We expect the outcome of the presidential race to remain highly uncertain, given the deep polarization of the U.S. electorate and the unpopularity of each candidate among the opposing electoral base,” acknowledges David Kohl, Chief Economist at Julius Baer.

According to Kohl, in an unusually early presidential debate in the run-up to the November U.S. presidential elections, incumbent President Joe Biden failed to convince voters of his mental fitness for office, as he stuttered and struggled to complete his thoughts and attacks on his main opponent, Donald Trump. Conversely, he believes Trump greatly benefited from Biden’s mistakes, although he did little to appeal to Democratic voters.

“The odds now favor a Trump victory in November. This makes a tougher trade policy in 2025 more likely, including significant and fiscally relevant tariff increases, which could create headwinds for consumption, elevate inflation, and push interest rates higher. Additionally, an extension of the expiring tax cuts is now more likely. The shift in odds has elevated the U.S. dollar in anticipation. Despite Trump’s clear victory in the presidential debate, we maintain our view that the outcome of the presidential race remains highly uncertain given the deep polarization of the U.S. electorate and the unpopularity of each candidate among the opposing electoral base,” concludes Julius Baer’s Chief Economist.

Net Assets of Mutual Funds Increased by 2.9% in the First Quarter of the Year

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The net assets of investment funds worldwide stood at 69 trillion euros during the first quarter of the year, marking a growth of 2.9%, according to the latest data published by the European Fund and Asset Management Association (EFAMA). When measured in local currency, the net assets in the two largest fund markets, the United States and Europe, increased by 6% and 4.5%, respectively.

Notably, the net assets of fixed-income funds increased by 3.1%, reaching 12.6 trillion euros, while multi-asset funds grew by 3.6%, amounting to 10.5 trillion euros. In the case of money market funds, the growth was lower, at 1.9%, bringing their net assets to 9.6 trillion euros. Conversely, real estate funds and other funds categories saw a decrease in assets under management, with declines of 18% and 13.6%.

At the end of the first quarter of 2024, 45.3% of the net assets in investment funds worldwide were held in equity funds, while fixed-income funds represented 18.2%, multi-asset funds accounted for 15.2%, and money market funds comprised 14%.

“If we look at the breakdown of global investment fund net assets by domicile at the end of the first quarter of 2024, the United States held the largest market share with 52.2%. Europe was in second place with a market share of 30.4%. China (4.7%), Brazil (3.4%), Canada (3.2%), Japan (3.1%), South Korea (1%), India (0.9%), Chinese Taipei (0.3%), and South Africa (0.3%) followed in this ranking,” highlights the EFAMA report.

In total, five European countries are among the ten largest fund domiciles in the world: Luxembourg (with 8% of the world’s investment fund assets), Ireland (6.3%), Germany (3.9%), France (3.4%), and the United Kingdom (2.9%).

 Inflows and Outflows

Regarding fund flows, the data show that funds recorded inflows worth 753 billion euros, compared to 645 billion euros in the fourth quarter of 2023. EFAMA notes that long-term funds recorded inflows of 497 billion euros, compared to 312 billion euros in the fourth quarter of 2023. “Globally, equity fund sales increased from 173 billion euros in the fourth quarter of 2023 to 193 billion euros in the first quarter of 2024,” they highlight.

In these first three months of the year, the leadership was taken by fixed-income funds, driven by strong demand in the United States and Europe.

“Global fixed-income vehicles saw record net inflows of 340 billion euros in the first quarter of 2024, the highest level since 2004. This increase was driven by investors anticipating lower interest rates amid slowing inflation and central banks pausing consecutive rate hikes,” says Bernard Delbecque, senior director of Economics and Research at EFAMA.

In contrast, multi-asset funds experienced outflows of 76 billion euros, marking the eighth consecutive quarter of negative net sales. ETFs also performed well, recording net inflows of 361 billion euros in the first quarter of 2024, compared to 350 billion euros in the fourth quarter of 2023.

Geographical Analysis

According to EFAMA data, all major regions experienced net inflows. Net inflows amounted to 108 billion euros in Europe, mainly driven by Ireland (31 billion) and France (20 billion). “Conversely, Luxembourg continued to record net outflows, totaling 6 billion euros,” they note.

The United States recorded net inflows of 276 billion euros, and the Asia-Pacific region experienced net inflows worth 317 billion euros, led by China (219 billion), followed by Japan (42 billion), and South Korea (28 billion euros).

“The Americas recorded 52 billion euros in inflows in the first quarter of 2024, compared to 22 billion in the fourth quarter of 2023. Brazil’s net sales turned positive, recording net inflows of 21 billion euros, compared to net outflows of 6 billion euros in the previous quarter. Canada also recorded notable net inflows worth 18 billion euros,” highlights EFAMA in its quarterly report.

Allfunds Reaches an Agreement With ICBC Asia

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Allfunds, a B2B WealthTech platform for the fund industry, has announced that it has reached an agreement with the Industrial and Commercial Bank of China (Asia) Limited (ICBC Asia). According to their statement, with the support of Allfunds, ICBC (Asia) will have access to a new technological platform: a comprehensive solution for more efficient investment fund transactions, with fewer manual processes, and a significant reduction in administrative burden and operational risks.

In a second phase, ICBC (Asia) will integrate some of Allfunds’ digital solutions. Specifically, Allfunds will develop an API (application programming interface) data platform designed for efficient access and integration of fund data and reports. Consequently, ICBC (Asia) will also have access to one of Allfunds’ flagship solutions, nextportfolio; an advisory and portfolio management tool offering multi-asset capabilities and a fully personalized digital experience.

“We are very pleased to support ICBC (Asia) in its growth ambitions beyond Hong Kong, where it is already a consolidated market leader, while we continue to develop our ecosystem and further specialize in serving custodians in Asia and worldwide. I am convinced that with this agreement, ICBC (Asia) will further strengthen its value proposition and achieve greater scalability and efficiency in serving its clients,” highlighted David Pérez de Albéniz, Regional Director for Asia at Allfunds.

For his part, Xu Lei, Executive Deputy Director of ICBC Asia, added: “We are very satisfied with our agreement with Allfunds and believe that there are many collaboration opportunities yet to be explored. The Industrial and Commercial Bank of China Limited (ICBC) is one of the largest custodian banks in China. As the flagship of ICBC’s overseas business, ICBC (Asia) provides global custody services, covering more than 90 markets worldwide through intergroup organizations and ICBC’s sub-custodian network. ICBC (Asia) supports various global investment products, such as QDII, QFI, Bond Connect, CIBM, and other cross-border businesses; as well as Hong Kong mutual funds, Cayman Islands funds, separate accounts, OFC, LPF, SPAC, Escrow, and other local and overseas businesses.”

The Fed Could Afford to Be Patient

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We explained last week that more and more signs point to an acceleration in the cooling of the labor market, which would stimulate savings, discourage consumption, and later, investment.

As an immediate consequence, the nascent recovery in manufacturing activity experienced since the beginning of the year—largely due to the resilience of the U.S. consumer and the fiscal push from the Joe Biden administration—would be threatened.

Although GDP has been slowing since the third quarter of 2023 (4.9% vs. 1.3% for the first quarter of 2024), preliminary data from the S&P PMI indices indicate that the United States remains in the lead in June, despite investors betting on a globally synchronized GDP growth scenario. The composite indicator (manufacturing and services) for the eurozone, the UK, or Japan points in the opposite direction.

In fact, other surveys, both regional and national (ISM, LCMI), anticipate that the U.S. may end up following in the footsteps of those other economies.

Leading indicators of industrial activity, such as confidence in the residential property sector (NAHB), financial conditions and their effect on production costs, or sentiment in the semiconductor sector (measured by stock prices), are showing signs of fatigue. Similarly, the recovery cycle in the new orders subcomponent of the ISM survey takes an average of 18 months to travel from trough to peak, which is the time that has passed since the last valley to the most recent peak.

As we can see in our regression model, U.S. manufacturing momentum could begin to slow over the summer. Likewise, it is worth monitoring the situation in Europe: the German IFO (manufacturing), worse than expected, may be an early sign that the U.S. consumer push and fiscal support are beginning to fade. And although in Europe, unlike on the other side of the Atlantic, households still have a savings cushion, they are also more sensitive (especially in Italy or Spain) to interest rate hikes, which will increase the cost of about a third of the loans they are currently enjoying over the next few months.

The nascent signs of this weakness may explain the optimism of CEOs of large companies regarding the business environment their firms will face over the next 12 months, which would imply an increase in investment. Interestingly, the perspective of SME managers or that reflected by the sub-indices is quite different and points in the opposite direction. The tug-of-war between the restrictive monetary policy implemented by the Fed and the public spending expansion driven by the Democratic Party has an amplified effect on medium and small-sized companies, which are responsible for two-thirds of the new jobs created in the country. Lower-income households, but with a higher propensity to consume, are shown to be the most sensitive in this situation. In fact, recent news and behaviors from companies like NKE (Nike), KRUS (Kura Sushi), WBA (Walgreens), H&M, and L’Oreal suggest that consumers are beginning to suffer.

Meanwhile, Bloomberg’s macro surprise index has dropped to its lowest levels in the past five years, while Citi’s is one standard deviation below its 20-year average. Despite this, expectations for rate cuts remain stable and point to a 0.25% cut by the Fed on November 7 (with the U.S. presidential elections two days later?), and a 76% probability of an additional adjustment in December.

This perspective makes some sense given the Fed’s dependence on the publication of macro data, which sometimes reflect what has happened rather than what may happen, and a macro context—which, in our opinion, is quite uncertain—as evidenced by the distribution of “dots” among central bank members who only foresee one action before the end of the year, those who foresee two, and those who would not act until 2025 (7, 8, and 4 bankers, respectively).

Several governors and presidents of regional Federal Reserve banks have shared a range of scenarios regarding the evolution of the labor market and inflation in the coming months. Christopher Waller, for example, warned months ago of an increase in unemployment once job vacancies exceeded 4.5%. As shown in the graph, it is at 4.7%, and decreasing.

As we can see in the graph of the latest BofA survey among managers (FMS), the consensus remains a soft landing, although looking back, this is the least plausible alternative. Since 1965, the United States has experienced 12 monetary tightening cycles, resulting in 8 recessions and only one true “soft landing.”

With a gradual decline in inflation series but growth close to or slightly above trend, the Fed could afford to be patient in initiating the rate cut cycle.

However, the lack of consensus within the U.S. central bank is similar to that shown by the BofA report and reflects the lack of visibility in the macro environment we have been discussing from this column.

Recent comments from Mary Daly (San Francisco Fed), Patrick Harker (Philadelphia Fed), or Michelle Bowman show the weak conviction of their positioning: “In my view, we should consider possible scenarios that could unfold in determining how monetary policy decisions [of the Federal Open Market Committee] may evolve,” Bowman recently explained.

And although other colleagues of Jerome Powell (Lisa Cook or Alberto Musalem) skew their discourse towards a “no-landing” scenario that would again dust off the possibility of rate hikes, the fact is that the objectives for core inflation (PCE) and the unemployment rate for the end of 2024 outlined in the latest Summary of Economic Projections have already been reached, and the risk is that they will be exceeded in the coming months.

At the time of publishing this comment, we are still awaiting the release of the May figures for personal spending and income and core PCE inflation. The next Fed meeting, where they will update their forecasts, will be on September 17-18. There are three months of employment, inflation, and growth data between now and then, which, if they follow the trajectory of April and May, will undoubtedly result in a “dovish” surprise.

The divergence in the RSI of the weekly graph of the yield on the American bond, the macro surprise index, and the shift in speculative positions may continue to appreciate public debt.

Elections in France: Impact on the Market and Possible Scenarios

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From June 30 to July 7, France faces its early elections. The call for these general elections arises from the high degree of polarization and fragmentation in the country, as shown by the results of the European elections. According to experts, the outcome of this election could limit the French government’s ability to address its most urgent challenges, such as the rehabilitation of public finances.

Since the announcement of the dissolution of the National Assembly on June 9, the French market has experienced a notable decline compared to its European counterparts. “From June 10 to 13, the CAC 40 fell by 3.6%, compared to a 1.4% loss for the Stoxx Europe 600. In fixed income, the spread between the 10-year German bond and its French counterpart widened by almost 50%, rising from around 50 to 75 basis points. This level reflects 2017 conditions, which already included concerns related to the French presidential elections. If the spread between France and Germany surpasses this level, the comparison point would then be the eurozone crisis of 2011-2012, when there were concerns about the union’s survival. At that time, Greece was in default, and the National Front, the former name of the National Rally party, advocated for France’s exit from the common currency,” says Alexis Bienvenu, fund manager at La Financière de l’Echiquier.

However, could this retreat in French financial markets go much further? According to Bienvenu, it is impossible to know, as there are numerous political scenarios, and market surprises are uncontrollable in the short term. “The market could perfectly adapt to a situation where politics is not dictated by the stock exchanges, according to General de Gaulle’s quote. However, the Italian scenario shows that any policy of a heavily indebted state will increasingly depend on the market, despite its efforts to avoid this. Ignoring this reality means ultimately becoming even more dependent on it over time,” he comments.

According to analysts at Edmond de Rothschild AM, the spreads of French public debt with Germany could have widened by approximately 26 basis points in recent days, but a very pessimistic scenario has been ruled out for now. Additionally, spreads widened across Europe, from about 10 basis points in the strongest countries to around 20 basis points in some peripheral ones.

“Other risk assets also fell in recent days. High-yield spreads widened by 28 basis points, and European equity markets also declined, with France being the most affected country. The contrast with a buoyant Wall Street is revealing. The flight to quality supported 10-year German and US public debt, whose yields fell by 24 and 23 basis points respectively, leaving the absolute yields of French OATs virtually unchanged,” added analysts at Edmond Rothschild AM.

A Source of Reassurance

According to La Financière de l’Echiquier (LFDE), markets have already begun to reduce country-specific risk premiums. “Proof of this was the issuance of French public debt on June 20, which garnered reassuring subscription levels and issuance rates. The Paris Stock Exchange has also begun to recover part of the decline accumulated a week after the dissolution. Investors seem to see the horizon clearing gradually, although it remains uncertain,” they argue.

According to the asset manager’s analysis, the most costly measures are progressively disappearing from programs and could do so even more with the exercise of power. While electoral programs aim to seduce voters, the exercise of power may require realism and rigor to maintain it.

“The maxim borrowed by several French politicians, stating that promises only bind those who believe in them, seems not to have completely deceived financial markets. Political uncertainty is very present in France, undoubtedly, but as seen in recent elections in Mexico or India, it could automatically dissipate with a quick resolution starting July 8,” added La Financière de l’Echiquier.

And a Source of Instability

For Thomas Gillet and Brian Marly, analysts of sovereign countries and the public sector at Scope Ratings, “these elections will be crucial in determining President Macron’s ability to drive France’s fiscal agenda and reformist momentum ahead of the 2027 presidential elections.” However, they recognize that it is unclear to what extent French voters’ preferences in parliamentary elections will differ from European elections, “which typically favor protest votes with relatively low participation,” they explain.

Gilles Moëc, chief economist at AXA Investment Managers, believes that the surprise legislative elections called by the French President have affected markets beyond French borders. In his opinion, “the uncertainty about the macro-financial outcome of July 7 is high, as the fiscally extravagant programs of both the far-right and the left-wing alliance compete with the more orthodox offer of the centrist majority in power. According to the limited available polls, the most likely scenario is a divided Parliament. France has much more capacity than the United States to avoid government shutdowns. However, a suitable majority is needed to implement the significant discretionary fiscal correction measures implied by the current French Stability Program.”

Moëc considers a thorny issue to be the role of the European Central Bank (ECB) if pressure on French and possibly peripheral bond markets increases. “At this time, given the absolute level of yields, there is no need for the ECB to intervene, but further widening cannot be ruled out in case of complete fiscal paralysis in Paris or if an administration led by the National Rally decides to adopt a very extravagant stance. The ECB’s tool to re-enter the bond market, the Transmission Protection Instrument, gives the Governing Council enormous leeway to decide whether to act, but the documentation still makes it clear that the recipient country must comply with the EU’s fiscal surveillance framework. This is where the problem could lie. Indeed, although the National Rally no longer questions the existence of the monetary union, it remains a sovereignist party, and its willingness to accept instructions from Brussels in the event of a financing crisis could be limited,” he warns.

Possible Scenarios

In the opinion of analysts at Edmond de Rothschild AM, the President is betting on the disorganization of opposition parties but has taken a significant risk and opened up a period of uncertainty. “The main hypothesis is that the National Rally (RN) only achieves a relative majority, especially after the left-wing parties managed to form a coalition, but the current momentum could still lead to an absolute majority. A Parliament without a majority cannot be ruled out: a non-partisan figure would be needed to lead a technocratic administration, as in Italy. Markets also bet that the RN will introduce significant changes to its program, especially to the most costly ideas. Again, like Georgia Meloni. The party has already indicated that this could happen: Jordan Bardella, from the RN, has said that the cancellation of the recent pension reform would be postponed to a later date to address emergencies,” they note.

Florian Spaete, fixed income strategist at Generali Investments, points out that although it is difficult to predict an outcome given France’s two-round electoral system, there are two main scenarios: “The far-right National Rally (RN) becomes the largest group but without an absolute majority in Parliament (stalemate), or the National Rally achieves an absolute majority (probably with the support of dissident center-right deputies), with Macron remaining President but having to cohabit with the new government.”

Additionally, he mentions other less likely scenarios, such as a majority left-wing coalition, which would probably have a negative impact on French assets, although this would be mitigated by the strong presence of social democrats (PS), who would likely oppose the radical left’s proposals. “Macron, and the markets, would dream of a national centrist coalition, but it is unlikely that the numbers would work, and both the Socialist Party and the Republicans would hesitate to enter such an unnatural alliance,” Spaete clarifies.

Special Purpose Vehicle (SPV): An Advantage or a Disadvantage When Investing in Private Markets?

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According to a survey conducted by CSC among professionals working in private markets, 29% believe that the necessary conditions are in place for an increase in investments and deals. Additionally, 46% think that the market context will improve in the next two to five years, which will lead to an increase in special purpose vehicles (SPVs), also known as special purpose entities.

The study, whose authors assert that SPVs play a fundamental role in optimizing investments in private markets, provides a geographical perspective. For instance, respondents in the Asia-Pacific region are the most cautious, with only 16% believing that market conditions will improve within a year or are already improving. This contrasts with North America and Europe, where 37% and 33%, respectively, already see improvements or expect improvements within a year.

Among other key findings of this survey is the significant role that SPVs and private debt are playing in increasing investment in private markets. Specifically, 67% of debt professionals believe that market conditions will improve in the next two to five years.

“Our study has found a much more optimistic sentiment among senior professionals in private markets after years of significant market volatility, which bodes well for the broader investment sector and the global economy. Private debt professionals were much more optimistic than their colleagues in other sectors. This supports the trend we are seeing more generally in the market, which is leaning towards private debt,” says Thijs van Ingen, Global Market Head of CSC Corporate and Legal Solutions.

CSC’s study comes at a time when private markets have begun to recover after significant volatility and headwinds in recent years. The firm notes that the use of SPVs, critical structures at the heart of the global investment system, has also grown, but so has the complexity faced by managers due to increased multi-jurisdictional regulation, stricter reporting requirements, and the need for richer levels of data granularity.

According to Delphine Jones, Managing Director of CSC Client Solutions, SPVs have become increasingly complex and involve more management work. “The SPV ecosystem has also become relatively inefficient, with a lot of unnecessary complexity. It is in this environment that outsourcing to specialized SPV administrators is also growing,” Jones comments.

This complexity has led many firms investing in private markets to opt for outsourcing part of the management of these special vehicles. In this regard, the CSC survey shows that the main criterion for outsourcing is “finding a good administrator,” according to 66% of respondents. Other criteria mentioned, in order of relevance, include finding a reputable administrator, technology and data and reporting capabilities, and access to a sophisticated technology platform. Additionally, respondents involved in real assets like private equity and debt indicated that they would like technology to provide a centralized portal for a single view of all SPVs (57% and 59% respectively).

“Many cited technology as an important factor when selecting their SPV administrator, highlighting the importance of technology in SPV management. This includes optimizing deal sourcing, investment, helping portfolio performance, and many other areas. Regardless of the strategy, fund managers aim to have a technology-enabled approach and seek to achieve an all-in-one administrative solution as much as possible. While it may seem advantageous to use multiple outsourcing partners, having too many partners can actually make processes even more complex. Consolidating their SPV administration to a single global outsourcing partner helps to optimize their processes,” concludes Thijs van Ingen.

Invesco Launches a New ETF Focused on China’s Most Innovative Companies

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Invesco has announced the launch of Europe’s first ETF providing investors with specific access to the ChiNext 50 Index, composed of the largest and most liquid companies in China’s technology and other innovative sectors. According to the asset manager, the Invesco ChiNext 50 UCITS ETF will replicate a capped version of the index to reduce concentration risk and ensure sufficient diversification.

Following this announcement, Gary Buxton, Head of EMEA ETFs at Invesco, highlighted one of the advantages of their global business model is having a strong local presence in the world’s major financial centers. “In collaboration with Invesco Great Wall, our joint venture investment management company in mainland China and a leading specialist in the Chinese market, we are pleased to announce, together with the Shenzhen Stock Exchange, the launch of a UCITS ETF linked to the ChiNext 50 Index. Our new ETF provides investors with unique access to China’s long-term growth potential, particularly given its focus on the innovation-driven transition to a new economy. As the ChiNext 50 Index celebrates its tenth anniversary in June, this ETF also marks a milestone in the index’s overseas expansion, accelerating the internationalization of Chinese A-shares,” Buxton added.

The asset manager believes that China is one of the fastest-growing markets in the world, with steady progress in key areas of economic growth, including technology. The country’s current five-year plan includes a goal to increase research and development (R&D) spending by at least 7% per year from 2021 to 2025, focusing on areas expected to yield high-value patents. For equity investors, increased R&D spending can be a significant driver of corporate earnings growth.

The ChiNext 50 Index reflects the performance of 50 of the largest and most liquid companies listed on the ChiNext market of the Shenzhen Stock Exchange. The capped index replicated by Invesco’s ETF comprises the same securities as the parent index but applies limits such that, at each quarterly rebalance, no individual security can have a weighting greater than 8%, and the aggregate weighting of securities with weightings above 4.5% cannot exceed 38%.

“While the index is not subject to explicit sector restrictions or requirements, investors can logically expect an overweight in technology, industry, and healthcare. The fund will invest in companies from rapidly growing innovative segments such as artificial intelligence, electric vehicles, renewable energy, robotics, automation, and biotechnology. Compared to broader Chinese indices, the average company in the ChiNext 50 Index has used more than double its operating income over the past six years for R&D financing to drive innovation,” highlighted Laure Peyranne, Head of ETFs Iberia, LatAm & US Offshore at Invesco.

The ETF will employ a replication method that aims to hold, as far as possible and feasible, all the securities in the index in their respective weightings but will use sampling techniques in circumstances where this is not reasonably possible.

Ignacio Gutiérrez-Orrantia, New CEO of Citibank Europe

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Citi has appointed Ignacio Gutiérrez-Orrantia as Chief Executive Officer of Citibank Europe Plc. (CEP). Based in Dublin, Ireland, Citibank Europe Plc. is one of Citi’s largest legal entities and its primary banking subsidiary in Europe. As explained by the entity, Gutiérrez-Orrantia assumes this role in addition to his current position as Head of Cluster and Banking in Europe, a role he has held since November 2023.

As Head of Cluster and Banking in Europe, Gutiérrez-Orrantia is responsible for managing Citi’s client relationships across Europe, overseeing all businesses, and maintaining a strong risk and control environment. As CEO of CEP, a vital part of his role will be to lead Citi’s European banking subsidiary and foster strong relationships with European regulators.

Gutiérrez-Orrantia has also been appointed Vice Chairman and member of the Supervisory Board of Bank Handlowy w Warszawie S.A. (Citi Handlowy) (MC: 3.43 billion USD). Additionally, Natalia Bozek, CFO of CEP and Europe, and Fabio Lisanti, Head of Markets in Europe, have been appointed to the Supervisory Board of Citi Handlowy. Citi Handlowy, a subsidiary of CEP, is one of Poland’s largest financial institutions.

Gutiérrez-Orrantia has over 30 years of experience in financial services. He has been with Citi for 20 years and was recently co-head of Citi’s Banking, Capital Markets, and Advisory business in Europe, the Middle East, and Africa (EMEA), where he led a team of more than 2,000 bankers across 54 markets. During this time, he has led some of Citi’s largest investment banking transactions in the UK and EMEA.

Following this announcement, Ernesto Torres Cantú, Head of International at Citi, stated: “The appointment of Nacho as CEO of Citibank Europe plc, in addition to his responsibility as Head of Cluster and Banking in Europe, combines the growth of our client business in Europe with the responsibility of having industry-leading risk and control, and managing our European legal entities. Nacho’s leadership in these critical areas of our business will support our simplification plans and ensure his accountability for all our activities in Europe. He is an exceptional banker, highly respected for the advice and insights he provides to clients. His experience, combined with the strength of Citi’s global network and services, ensures that we are well-positioned to build on the positive momentum we are achieving in Europe.”

For his part, Nacho Gutiérrez-Orrantia added: “I am delighted to be appointed CEO of Citibank Europe plc. We have exceptional talent here and employ nearly 18,000 people. Citi has a great opportunity to deliver our unparalleled global network to our European and global clients. I am confident that we will be the leading international bank in Europe.” Citi has had a presence in Europe for over 100 years and operates in 24 countries in Europe, serving clients in 18 more.