Triple Event: Data Will Guide the Decisions of the Fed, BoE, and BoJ

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On Wednesday and Thursday, there will be a triple event for central banks: the US Federal Reserve (Fed), the Bank of England (BoE), and the Bank of Japan (BoJ) will hold their respective monetary policy meetings. Each institution faces its own challenges and has its messages for the market. However, they all have one thing in common: dependence on the evolution of macro data, particularly inflation.

In the case of the Fed, everything indicates that it will maintain interest rates in this upcoming meeting, which will be interpreted as preparing for a possible first cut in September. However, things are not as clear for the Bank of England (BoE), where the sentiment for a possible cut is only 50%, despite what the data suggests. Lastly, experts explain that this BoJ meeting is important because it will provide more details on the plan to reduce the asset purchase program (QT), the next step to normalize monetary policy. The main conclusion is that there will be no rate hike, as it will be a gradual process to give the market time to digest the bonds and avoid a spike in yields.

The Fed in the US

According to Christiaan Tuntono, senior economist for Asia Pacific at Allianz Global Investors, the prospect of a rate cut in the US and the rebound in demand for semiconductors and electronics, in general, are currently very favorable factors for part of the Asian economy and many local equity markets. “In this sense, we expect the Federal Reserve to keep interest rates unchanged next week but to acknowledge the improvement in US inflation, which could open the door to a rate cut by the end of the summer,” Tuntono points out.

Regarding the importance of data, Pramod Atluri, manager at Capital Group, highlights that “the US economy has largely adapted to this new interest rate environment, and I expect growth to remain above 2% in 2024.” In his opinion, this resilience shown by the US economy has led investors to adjust their expectations regarding interest rates. Although Atluri believes that the arguments for future rate cuts are no longer as evident, the central bank seems inclined towards cuts.

In this regard, the views and analysis from international managers coincide with Tuntono Atluri’s assessment. There is also a consensus in interpreting the latest macro data from the country. “Although the labor market shows clear signs of normalization and recent consumer inflation data has been relatively positive, the central bank has been encouraged by macroeconomic data several times over the past 18 months, only to later discover that the economy continued to operate at an excessive pace. Therefore, it is likely that the Fed will argue that it is prudent to observe the next six weeks of data to clearly validate the need for policy easing,” says Erik Weisman, chief economist at MFS Investment Management.

However, in his opinion, more important than what the Fed does in the next month and a half is how the market will gauge the subsequent pace of rate cuts and the eventual landing zone. “The magical soft landing of 1995 was achieved with only 75 basis points of rate cuts, and some argue that we will see a repeat of that episode in the next six months or so. However, the market expects the Fed to cut between 175 and 200 basis points before the first quarter of 2026,” estimates Weisman.

Regarding when the Fed’s first rate cut will be, managers’ analyses also point to the same timeline: September. “We believe that this week’s data, especially the 0.18% month-over-month core PCE and the signs of cooling shelter inflation, continue to reinforce our view that the first cut will occur in September. We expect a moderate hold at the Fed meeting, with Powell indicating during the press conference that a first cut is likely to happen quite soon if data continues to evolve as expected,” says Greg Wilensky, director of US Fixed Income and Portfolio Manager at Janus Henderson.

“The lower inflation rates of the past three months should pave the way for a rate cut in September. This is likely to be reflected in the meeting’s conclusions, as the Committee is expected to ensure that confidence in inflation evolving sustainably towards 2% has strengthened and emphasize that the risks to employment and inflation objectives are now balanced. Powell is likely to use his speech at Jackson Hole next month to outline the framework for the easing cycle and remind investors that the Fed will likely lower rates gradually once it begins,” adds Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable AM.

For his part, Brendan Murphy, head of North American Fixed Income at Insight Investment (part of BNY Investments), expects the committee’s official statement to include some modest changes, reflecting how their key inflation metrics are now close to the target and the labor market shows signs of slowing down. “The central bank may be concerned about a potential sudden deterioration in the labor market at some point, so we expect most members to prefer acting soon to ensure a soft landing for the economy. Chairman Powell could also use next month’s Jackson Hole Symposium to set expectations for the rate-cutting cycle,” comments Murphy.

Looking at the United Kingdom

A completely different case from the US is the Bank of England (BoE). According to Katrin Loehken, economist for the UK and Japan at DWS, the outcome of the BoE’s upcoming meeting on Thursday is not clear at all. “The market expects a rate cut with just over 50% probability, and we also anticipate a reduction in the official rate from 5.25% to 5%. However, uncertainty is high because there are good arguments for both sides,” says Loehken.

In this sense, she explains that if most members of the Monetary Policy Committee (MPC) place more emphasis on a prudent and data-dependent assessment of the current situation, the negative surprise in service price inflation in July would be an argument against a rate cut, as would the slow decline in wage dynamics. “With a wait-and-see attitude, nothing wrong would be done in that case. Chief Economist Pill seems to be in the waiting camp after his last speech,” she clarifies.

On the other hand, the DWS economist highlights that updated growth and inflation forecasts should show that the economy is still growing moderately and that inflation is likely to fall below the 2% target in the medium term. Additionally, the current weakening of the labor market also raises the question of how restrictive the central bank should remain.

“In our view, these arguments are more favorable to a first rate cut and are also consistent with the central bank’s generally pessimistic rhetoric. The assessment of voting behavior is further complicated by the new composition of the Monetary Policy Committee. Therefore, only a narrow majority should vote in favor of the expected rate cut,” comments Loehken.

However, Johnathan Owen, manager at TwentyFour AM (Boutique of Vontobel), believes that the BoE may delay this rate cut. “The latest UK inflation figures will bring some relief to consumers, but behind the headline figure, Bank of England policymakers face a more complex picture that suggests rate cuts could still be far off. The latest data showed that the Consumer Price Index (CPI) inflation fell exactly to 2% in May, in line with market expectations and marking a return to the BoE’s 2% target for the first time since July 2021,” argues Owen.

According to him, before Wednesday’s CPI data, markets had largely ruled out any chance of the Bank of England cutting rates in June, although the probability of a cut in August was at 44%. “Despite the Bank of England achieving its headline inflation target of 2%, the rigidity of services inflation, driven by strong wage growth and resilient demand in certain sectors, makes a rate cut in August increasingly unlikely, in our opinion,” defends the expert from TwentyFour AM.

Lastly, Peder Beck-Friis, economist at PIMCO, maintains his outlook and points out that the BoE will make two rate cuts in 2024. “Core inflation is likely to decline as the effects of the pandemic fade, monetary policy remains restrictive, and the labor market rebalances. Rachel Reeves’ comments yesterday show that the new government is firmly committed to fiscal discipline, reducing the upside risks to inflation in the coming years,” explains Beck-Friis.

Japan and Its Historic Monetary Policy

Finally, according to analysts at Banca March, in Japan, investors are betting on a rate hike at the July meeting, especially after the long silence from Governor Ueda—he will arrive at the meeting with more than 40 days without public interventions—and in light of the recent appreciation of the yen (5% higher against the dollar).

Not only is a rate hike expected, but a reduction in its monthly bond purchases could help strengthen the yen even further. “The possibility of a BoJ rate hike could lead to higher yields on Japanese bonds. However, they could see some volatility in case of a surprise. These actions would represent a significant shift in Japan’s monetary policy, affecting bond yields. Yields fell today and could remain under pressure before the BoJ meeting, although they remain near their highs. Additionally, the risks of escalating geopolitical tensions in the Middle East and elsewhere could drive flows into safe-haven assets, benefiting the yen,” explains Bas Kooijman, CEO and manager at DHF Capital S.A.

According to Magdalene Teo, Asian fixed income analyst at Julius Baer, it is still possible for the BoJ to maintain a hawkish stance by setting the stage to reduce bond purchases with a clear and bold plan to raise interest rates. “In any case, the big decision this week will come from Japan. Any communication error could be costly for the BoJ. The AUD and most Asian currencies, except MYR, IDR, and KRW, depreciated against the USD yesterday,” concludes Teo.

BNY Investments Launches a New Global Aggregate Fixed Income Fund

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BNY Investments has announced the launch of the BNY Mellon Global Aggregate Bond Fund, a vehicle managed by Insight Investment (Insight), a global manager with $838.1 million in assets under management, of which $252.6 million is in fixed income.

According to the asset manager, the fund launches with an initial capital of approximately $150 million and will primarily invest in government debt securities and investment-grade credit from around the world. The strategy is co-managed by the Global Credit, Global Rates, and Macro Research teams. These three teams are part of Insight’s Fixed Income Group (FIG), composed of 166 investment professionals worldwide. Specifically, the vehicle will be led by Adam Whiteley, Head of Global Credit, and Harvey Bradley, Senior Portfolio Manager, in coordination with Portfolio Manager Nathaniel Hyde.

“Our approach focuses on selecting the best ideas from a set of global fixed income opportunities to build a truly diversified portfolio. While we prioritize investment-grade debt, we can invest in high yield and emerging market fixed income. When building the portfolio, the team combines Insight’s top-down macroeconomic analysis with bottom-up security selection to identify opportunities that offer attractive risk-adjusted returns regardless of market conditions,” explained Peter Bentley, Co-Head of Fixed Income at Insight.

Sasha Evers, Head of Europe ex-UK at BNY Investments, added: “We are in an ideal moment for fixed income because yields are at levels we haven’t seen since before the global financial crisis. This new fund is managed the same way as the global aggregate fixed income strategy launched by Insight in 2015, which has assets of €9.2 billion.”

The fund is part of BNY Mellon Global Funds, plc (BNY MGF), the range of products domiciled in Ireland, and is registered in Austria, Belgium, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Norway, Singapore, Spain, Sweden, and the United Kingdom.

Political Uncertainty, Inflation, and Central Banks Will Shape the Exchange Rate Between the Euro and the Dollar

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The political uncertainty following recent European elections and ahead of the U.S. elections in November this year is a key factor in evaluating the future of the euro-dollar exchange rate. Additionally, this situation is compounded by the evolution of inflation in both economies, which is decreasing at a slower pace than expected, and the decisions that the ECB and the Fed will make regarding the pace of interest rate cuts.

To provide an approximate forecast of how the euro-dollar relationship will evolve, we have gathered analysis from various experts. For example, Claudio Wewel, currency strategist at J. Safra Sarasin Sustainable AM, considers it unlikely that the euro will rebound, as manufacturing momentum is slowing, although the currency should rise once the Fed starts cutting rates.

“Since the beginning of the year, the euro has had a mediocre performance. So far this year, it has fallen by around 3% against the U.S. dollar, while it has recorded a 1% rise in trade-weighted terms. Notably, the euro’s fluctuation band has been narrowing in recent years, and since January, the euro-dollar ratio has remained between 1.06 and 1.10,” Wewel points out.

According to his view, the duration of the current episode of “prolonged rise” will depend on the data. In this regard, he notes that the latest U.S. macroeconomic data have been weaker than expected, suggesting a moderation of the U.S.’s superior cyclical performance. However, he sees it as unlikely that the cyclical euro will benefit from the weakening economic activity in the U.S., given that the main economies of the eurozone have seen disappointing manufacturing PMIs in June.

“In this relative cyclical context, the ECB should be able to cut its policy more than the Federal Reserve this year. Along with the greater rigidity of U.S. inflation, the Fed’s less deep rate cut path than the market expected also reflects the increased odds of Donald Trump’s victory in the 2024 U.S. presidential election, which markets have started to consider as the base case. In our opinion, Trump’s policy mix would likely be more inflationary than a continuation of Biden’s policies, implying that in 2025 the Fed would implement fewer rate cuts in this case,” adds the expert from J. Safra Sarasin Sustainable AM.

From Ebury, they point out that market nervousness and uncertainty will benefit safe-haven currencies. The fintech predicts a slight appreciation of the euro-dollar pair in the coming months, which will largely result from “some convergence in economic outcomes across the Atlantic in 2024, as the U.S. economy slows after an impressive year, while the eurozone accelerates from a very low base.” Ebury analysts believe this circumstance “will push the pair back towards the 1.10 level by the end of the year, with further appreciation towards the 1.14 level in 2025.”

However, they warn that the outcome of the November presidential elections in the U.S. could pose a risk to this view. “A Donald Trump electoral victory, which markets currently assign about a 50% probability, could be bearish for EUR/USD if the former president doubles down on the protectionist policies that characterized his previous tenure in the White House,” they explain.

Parity: An Omen of Bad Luck?

Finally, according to Bank of America, parity between the two currencies is “rare” and “has not lasted long,” and they believe that for it to happen again, “everything would have to go wrong and stay that way.” According to their analysts, the probability of the euro/dollar reaching parity or less using quarterly data is zero.

“The verdict is still out on whether the euro/dollar will stay at its post-2014 lows or recover to its previous highs. Much depends on the balance between unsustainable debt and U.S. exceptionalism, and to what extent Europe unites to tackle its severe challenges stemming from geopolitics and energy dependency. A potential trade war after the U.S. elections could further weaken the euro. However, for us, parity remains only an outcome in extreme risk scenarios, and even then, we wouldn’t expect it to last long,” explains the entity in one of its latest reports.

Drawing on historical perspective, BofA indicates that the euro/dollar fell below parity only in exceptional circumstances that did not last long. Specifically, it did so only during the periods of 2000-2002 and from August to October 2022. “The first period, which was the longest, occurred during the dot-com bubble in the United States and its burst. The second period was during a perfect storm of negative shocks for Europe, with the war in Ukraine triggering a severe deterioration in its terms of trade through an energy shock, and with divergent monetary policies as the Fed was raising rates while the ECB denied inflation, delaying its policy tightening. However, the euro/dollar was above parity in November 2022, as these shocks began to diminish and the ECB started catching up with the Fed,” they point out.

Their analysis shows that the euro/dollar weakened but stayed above parity during other severe shocks. For example, it was well above parity during the global financial crisis and the eurozone crisis. It weakened substantially but also remained above parity during the ECB’s negative policy rate period after 2014. “Similarly, it stayed well above parity and without a clear trend during Trump’s first term in the United States: the euro/dollar initially strengthened and then weakened. It also remained well above parity during the pandemic,” concludes BofA in its report.

BNP Paribas Enters into Exclusive Negotiations for the Acquisition of AXA Investment Managers

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The BNP Paribas Group announced this Thursday that it has entered exclusive negotiations with AXA to acquire 100% of AXA Investment Managers (AXA IM), which represents more than $916 billion (€850 billion) in assets under management, along with an agreement for a long-term partnership to manage a large portion of AXA’s assets.

BNP Paribas Cardif, BNP Paribas’ insurance business, after proceeding directly with the proposed transaction as principal, would have the opportunity to rely on this platform to manage around $172 billion of its savings and insurance assets.

With the combined contribution of BNP Paribas’ asset management platforms, the new business formed, whose total assets under management would amount to $1,612 billion, “would become a leading player in Europe in the sector,” the firm’s statement says.

“This project would position BNP Paribas as a leading player in Europe in long-term asset management. Benefiting from critical mass in public and alternative assets, BNP Paribas would more efficiently serve its customer base of insurers, pension funds, banking networks, and distributors. The strategic partnership established with AXA, the cornerstone of this project, confirms the ability of both groups to join forces. This significant project, which would drive our long-term growth, would represent a powerful growth engine for our Group,” said Jean-Laurent Bonnafé, Director and CEO of BNP Paribas.

The acquisition would also allow the combined businesses “to benefit from AXA IM Alternatives’ market leadership position and track record in private assets, driving further growth with both institutional and retail investors,” the firm’s information adds.

The agreed price for the acquisition and the establishment of the partnership is around $5.5 billion (€5.1 billion) at the expected closing by mid-2025.

With a CET1 impact of approximately 25 basis points for BNP Paribas, the expected return on the invested capital in the transaction would be over 18% from the third year onwards, once the integration process is completed, the information states.

The signing of the transaction is subject to the information and consultation process with the employee representative bodies. The transaction is expected to close by mid-2025 once regulatory approvals have been obtained.

“AXA Investment Managers has been an internally created success story for the AXA Group. Over the past 25 years, we have built an exceptional franchise anchored in investment expertise, an unwavering focus on the client, and a proven track record in sustainability. Thanks to the quality of its teams, AXA IM is today a leading player, especially in Alternatives in Europe,” said Thomas Buberl, CEO of AXA.

Awaiting The Harris Effect, Trump Remains The Favorite

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The Predictable Exit of Joe Biden Happened Last Weekend. According to data from Polymarket, Kamala Harris has a 92% chance of being the Democratic nominee for the November presidential election. The support from most Democrats, as well as from the 50 state party leaders, guarantees — barring any last-minute major surprise — her official nomination at the party congress at the end of August.

Although initially (and before news of Biden’s withdrawal), Robert F. Kennedy Jr. seemed better positioned, according to betting houses, Harris’s replacement seems to bring some hope to the Democratic ranks. After facing serious difficulties in attracting campaign contributions in recent weeks, they have reportedly raised over $150 million in donations in less than 24 hours since the new candidacy announcement, according to CNBC.

With barely three months before the elections, and seeing how the gap has widened substantially between Kamala and other Democratic candidates in the latest polls, it seems that the blue party is rallying around the least bad option they have. Kamala Harris’s contributions to the White House battle have a marginally positive balance.

On the negative side, Harris’s electoral record is not brilliant. She won the California Attorney General position in 2010 by only 0.8% more votes than her opponent, Republican Steve Cooley. As previously explained, she was not the preferred replacement for Biden. She also doesn’t seem likely to significantly diminish Trump’s apparent advantage in the electoral vote (vs. popular vote). Additionally, as Vice President of the current administration, she will bear the brunt of issues like inflation or lack of control in immigration that are dragging down poll numbers.

Perhaps the most unfavorable aspect, which Donald Trump will surely exploit to his advantage, is the perception among conservative Americans regarding Harris’s political positioning, which is to the left of Biden and other more conservative Democratic presidents. Considering the U.S. demographics (50.4% women and approximately 14% African Americans, with only about 23% of registered Democrats identifying as “liberals”), the median voter theorem consolidates her as a disadvantaged candidate.

On the positive side, Harris’s disapproval rating before the announcement was better than Joe Biden’s (49.5% vs. 57%). In her role as Vice President, anyone who would have voted for Biden this November would reasonably consider a scenario where Kamala would have to replace him in the Oval Office before 2028 and would be the natural alternative for Democrats in the presidential elections that year.

Additionally, it forces Republicans to rethink their strategy, facilitating their opponents’. Kamala is now in a position to attack Trump using his advanced age as a primary argument (Harris is 59 years old, compared to Trump’s 78). Counteracting the negative interpretation of her chances according to the median voter theorem, a Pew “think tank” chart suggests a “center” or moderate voter group (39%) that surpasses both blue liberals and red conservatives. In other words, if Kamala can convincingly take a step to the right — assuming, with the addition of JD Vance, that Trump won’t moderate his rhetoric — she could improve her poll numbers compared to Biden’s records.

As explained in this analysis published in 2022, Americans who actively use X to interact with politicians, media, or journalists in public forums demonstrate that Harris could leverage this tool to present a more moderate profile: as distribution graphs show, blues have much more exposure to the social network than conservative Republicans.

Applying the 13 criteria of historian Allan Lichtman, which have accurately predicted the popular vote direction in all presidential elections from 1984 to 2020 and offer an interesting framework to study contenders’ merits despite being subjective at times and dependent on almost real-time information at others, my result would favor Trump (6 or more false criteria coincide with a change of White House occupant).

In the coming weeks, we’ll start receiving poll results that will show whether the Democrats’ surprise move allows Kamala Harris to close the gap with Donald Trump. The first, from Quinnipiac University, conducted a day after the announcement, seems to point in this direction: 49% of participants supported Trump, compared to 47% for Harris, improving the 48% – 45% shown in the previous poll with Biden. Another Ipsos poll on Wednesday placed her two points ahead of her opponent. The average of the three most recent polls leaves the difference at just one point.

For now, although Trump remains the favorite, his approval rating is low at 42.3%, but it surpasses Kamala Harris’s 37.8%. The balance of the few polls conducted since July 19 gives him a three-point advantage. The bets, which have been more accurate in identifying winners in other electoral processes, are 61%-36% in favor of the Republican, although he has lost three points in the last three days.

The election remains close, and it’s important to follow the polls in the “swing states” identified a couple of weeks ago, as they could be key: a shift towards normalization in Pennsylvania, Michigan, or Wisconsin (historically Democratic strongholds now leaning the other way).

Only a month has passed since the first presidential debate, and things have moved very quickly since then. Although it’s very likely that Powell will clarify his intention to start lowering rates in September at the July Fed meeting, the other support for portfolio rotation discussed last week has become much more unstable.

The rebalancing towards more cyclical, value, and small-cap companies could continue to benefit from macro announcements pointing to a consolidation in the disinflation trend, allowing the Fed on the 31st to lay the foundations for the start of a cycle of easing monetary policy.

However, more evident signs of a cooling job market or loss of momentum in the first quarter’s industrial activity rebound would deny the hypothesis of a cycle elongation. Additionally, investors, after the initial boost, may reassess the macro implications of a second Trump term, which might not be as favorable for the stock market.

Why Will Equities Be One of the Major Stars of the Second Half of the Year?

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The presentation of the semi-annual outlook by international asset managers has highlighted three common ideas: the impact of monetary policy decisions by major central banks, the increase in geopolitical risks, and the importance of being invested in both traditional and alternative assets. In this context, the main risk for investors is staying out of the market, given the numerous sources of uncertainty and volatility on the horizon for the next six months.

According to the managers’ projections, global growth expectations are set at 3.1% in 2024 and 3% in 2025. Inflation is expected to normalize in 2024, allowing central banks to continue cutting rates, although not all at the same time. In this regard, a renewed spike in inflation after the U.S. elections is a risk that investors should watch.

Benjamin Melman, Global CIO of Edmond de Rothschild AM, notes that a year ago, the economy presented many uncertainties, as disinflation remained tepid and there were fears of a recession in the United States. However, political difficulties were relatively contained at that time. Since then, the issues have reversed. “While the economic environment now seems quite promising, it is overshadowed by political problems. The only constant has been the continuous deterioration of the geopolitical environment. This means that there could be some volatility triggered by political turmoil in France or the potential return of Trump to the White House. The good news is that markets can sometimes overreact to political crises, which can create some attractive opportunities,” Melman states.

Taking this into account, the CIO of Edmond de Rothschild AM suggests that “considering the returns recorded so far this year and the strength of the global economy, it makes sense to remain well exposed to equities.”

Opportunities in Equities

“The economic context supports profits and risk assets, but most of the upside potential is already priced in by the markets, and it will be challenging to find clear catalysts for new gains. To navigate this uncertain transition to the next phase of the cycle, we favor high-quality equities, along with a positive bias in duration and commodities to protect against inflationary risks,” adds Vincent Mortier, Group CIO of Amundi.

When discussing specific opportunities, Melman notes that within equity markets, “while the main geographical decisions (U.S. versus Europe) will largely be determined by the aforementioned political issues, the investment teams prefer Big Data and Healthcare, as well as European small caps, which are trading at very attractive valuations considering the more favorable economic environment and the monetary easing that has already begun.”

Mortier expands on his idea of high-quality equities: “Avoid concentration risks and focus on quality and valuation.” He adds that opportunities abound in U.S. quality and value stocks and global equities. “Also consider European small caps that could capitalize on the economic cycle recovery, with attractive valuations. In terms of sectors, our position is balanced between defensives and cyclicals at the lower end of the range. We are more positive on financials, communication services, industrials, and healthcare,” states Mortier.

He also believes that emerging market equities offer interesting opportunities and relatively attractive valuations compared to the U.S. “We favor Latin America and Asia, highlighting India for its robust growth and transformation trajectory,” he adds.

Ronald Temple, Chief Market Strategist at Lazard, expects to see a broadening of the equity market rally driven by better earnings growth outside the technology sector. “This broadening does not mean that tech and AI stocks will stop performing. However, it is likely that the gap between tech leaders and the rest of the market will narrow, or even reverse, as investors realize that the rest of the market has largely stagnated for more than two years and now offers more attractive return potential,” he argues.

Temple also notes that non-U.S. markets are trading at much less demanding valuation multiples and are expected to benefit from accelerated growth while the U.S. market slows down. “Additionally, non-U.S. companies are often more exposed to variable-rate debt, which should benefit them as the ECB and other central banks ease monetary policy before the Fed, and they could also experience a more significant recovery in revenues and profits from current levels,” he concludes.

Ashish Shah, Chief Investment Officer, Public Investing at Goldman Sachs Asset Management, estimates that in equity markets, stronger business models have demonstrated margin resilience, with recent earnings seasons in the United States exceeding expectations. Performance has expanded beyond the so-called Magnificent Seven.

“The second half of 2024 may present opportunities for investors to broaden their horizons beyond the largest names, with U.S. small-cap companies poised to rebound, offering attractive absolute and relative valuations. Small-cap companies can provide access to greater growth potential from future mid- and large-cap leaders. Certainty around rate cuts should provide additional tailwinds,” Shah points out.

Regarding Europe, he adds that “the improved growth and inflation mix in Europe, combined with better corporate earnings dynamics and modest valuations, bodes well for continental European equities.” In the Japanese equity market, he sees great opportunities as structural changes are driving good performance after decades of deflation.

Special Purpose Vehicles (SPV): The Key to Enhancing Investment Strategy Distribution

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Special purpose vehicles (SPVs) are a prominent and widely used option to leverage projects in the financial market. FlexFunds explains why companies set up SPVs and how they are structured:

SPVs are established as independent entities by companies of all sizes, including those backed by venture capital, to carry out specific financing projects and facilitate their administration. These vehicles are used to execute securitization strategies, allowing multiple asset classes, both liquid and illiquid, to be converted into listed securities by creating an autonomous pool of assets.

FlexFunds‘ securitization program handles large-scale agreements, allowing asset managers to securitize small or large asset volumes. FlexFunds’ SPVs can enhance the distribution capacity of an investment strategy, whether managing $1 million or $200 million.

What is a special purpose vehicle (SPV)?

An SPV is an entity created by another company, known as the sponsor, to accomplish a specific purpose by assigning it a series of goods or assets. Its activity is clearly defined and limited: to execute and exploit a specific project. This asset and risk separation is achieved through contractual and/or corporate formulas.

Generally, an SPV is identified as a business investment vehicle or vehicle company. An investment vehicle is a tool that allows capital to be raised more cost-efficiently.

FlexFunds, a leading company in the design and launch of investment vehicles, works with renowned international providers to offer customized solutions. They allow asset managers to issue ETPs through an SPV established in Ireland, fully tailored to their needs.

Structure and benefits of SPVs

Special purpose vehicles are structured as subsidiaries of the sponsoring firm and can be established in different jurisdictions, considering aspects such as tax payments. The independence of SPVs grants them legal and asset autonomy, keeping their balances separate from those of the sponsoring company.

According to the Cerulli Edge-U.S. Managed Accounts study, 71% of asset managers prioritize expanding product distribution and creating new investment vehicles. SPVs can be an effective alternative to achieve these goals due to the following benefits:

  • Market segmentation and customization: They allow the creation of investment vehicles tailored to different market segments, attracting investors with different risk profiles and preferences.
  • Transparency and trust: They offer a high level of transparency, facilitating the understanding of associated risks and benefits, and generating trust among investors.
  • Operational efficiency and cost reduction: They simplify the operational structure of an investment strategy, reducing administrative and operational costs.
  • Flexibility and adaptability: They allow the investment strategy to be adapted to market conditions, including restructuring the SPV for new assets or modifications without affecting other operations of the parent company.
  • Access to new markets and asset types: They facilitate access to markets and assets that would otherwise be difficult to reach, such as investments in emerging markets, illiquid assets, or infrastructure projects.
  • Tax efficiency: They can be structured to optimize tax implications for investors, taking advantage of specific tax benefits in different jurisdictions.
  • Improved liquidity: They provide or increase the liquidity of certain assets, allowing investors to buy and sell shares in the SPV instead of negotiating the sale of the underlying asset.

SPVs are versatile and powerful tools for enhancing the distribution of investment strategies, resulting in more effective capital raising and the creation of more robust and diversified strategies.

FlexFunds‘ securitization program structures investment vehicles that can enhance the distribution of investment strategies in international capital markets in less than half the time and cost of any other alternative in the market.

You can contact FlexFunds experts at info@flexfunds.com.

Franklin Templeton Expands Its Range of ETFs with a New Japanese Equity Fund

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Franklin Templeton expands its range of passive funds with the launch of the Franklin FTSE Japan UCITS ETF, the first ETF to track the Japan index. According to the manager, this brings the number of indexed funds offered to investors to 22.

The Franklin FTSE Japan UCITS ETF invests in large and mid-cap stocks in Japan. It is passively managed and tracks the performance of the FTSE Japan Index – NR (Net Return), a market-capitalization-weighted index representing the performance of large and mid-sized companies in Japan, aiming to capture 90% of the investable Japanese equity market universe.

“We are pleased to offer this new single-country index-tracking UCITS ETF that invests in Japanese equities to European investors. Investors can now gain diversified exposure to over 500 Japanese companies across a wide range of industries. The Japanese stock market is the second-largest stock market in the Asia-Pacific region and the largest developed market in the region. After decades of deflationary trends, Japan’s central bank recently stated that it sees a virtuous cycle between wages and prices intensifying, which should help boost consumption and investments. The country’s strong position in the global technology supply chain, including semiconductors, along with a renewed focus on corporate governance and shareholder value, should also favor the domestic stock market,” highlighted Caroline Baron, Head of ETF Distribution for EMEA at Franklin Templeton.

The new ETF will provide European investors with cost-effective and UCITS-compliant exposure to Japanese stocks, with one of the lowest total expense ratios (TER) in Europe for its category, at 0.09%. It will be managed by Dina Ting, Head of Global Index Portfolio Management, and Lorenzo Crosato, ETF Portfolio Manager at Franklin Templeton, who have more than three decades of combined experience in the asset management industry and extensive track records in managing ETF strategies.

According to Matthew Harrison, Head of Americas (excluding the US), Europe, and the UK at Franklin Templeton, following the launch of the Franklin FTSE Developed World UCITS ETF a few weeks ago, the manager is expanding its offering of core index-tracking equity products with the launch of this new low-cost FTSE Japan ETF. “With a market capitalization of $6 trillion and Japanese market returns expected to recover, Japanese equities can be a core portfolio building option for an investor’s portfolio,” highlights Harrison.

The Franklin FTSE Japan UCITS ETF will be listed on Deutsche Börse Xetra (XETRA) on July 30, 2024, on the London Stock Exchange (LSE) and Euronext Amsterdam on July 31, 2024, and on Borsa Italiana on September 4, 2024. The fund is registered in Austria, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Spain, Sweden, and the United Kingdom.

Banco Santander and Google Launch a Free Course on Artificial Intelligence

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Banco Santander and Google have reached an agreement to offer free artificial intelligence (AI) training for individuals over 18 years old from any country.

The “Santander | Google: Artificial Intelligence and Productivity” course, which debuts on the Santander Open Academy platform in Spanish, English, and Portuguese, will allow users to harness the potential of this technology to apply it in both their professional and personal lives. Improving productivity, acquiring basic knowledge, and developing the skills necessary to automate tasks, generate ideas, and solve problems more efficiently will be some of the outcomes achieved with this training.

For Rafael Hernández, Deputy Global Director of Santander Universities, “there is no doubt that AI is revolutionizing our daily lives, especially work environments, with a direct impact on creating new opportunities and professional profiles. This course provides important tools to enhance professional skills, generating greater job competitiveness and effective adaptation to the demands of the current and future market.”

“We are thrilled to partner with Banco Santander to offer this free and accessible AI training to anyone, anywhere in the world,” said Cova Soto, Marketing Director of Google Spain and Portugal. “This collaboration reflects our shared commitment to democratizing AI education and empowering people with the skills they need to thrive in the digital age. We believe that by making AI knowledge and tools available to everyone, we can unlock new opportunities for personal and professional growth.”

Course Content

The course offered by Banco Santander and Google is designed to be accessible to everyone, regardless of their prior technical experience. It is delivered in simple and direct language, facilitating the understanding of fundamental AI concepts and its growing influence in the work world. Participants will acquire the following skills and knowledge:

  • Fundamentals of AI: Understand the basic principles of artificial intelligence and how it is transforming various sectors.
  • Practical Applications of AI: Learn to use AI tools like Google’s Gemini to optimize daily work productivity.
  • Creating Effective Requests: Develop the ability to generate clear and precise requests to obtain the best results from AI tools.

This course is a unique opportunity for professionals from all fields to familiarize themselves with AI and acquire practical skills to leverage its potential in their professional lives. Upon completion, users will receive a certificate that will validate the training they have received.

Santander’s Commitment to Education, Employability, and Entrepreneurship

Banco Santander has maintained a pioneering and solid commitment to education, employability, and entrepreneurship for over 27 years, distinguishing it from other financial entities worldwide. The bank has allocated more than €2.3 billion and supported over 1.5 million people and businesses through agreements with more than 1,200 universities. Through Santander Open Academy, it offers access to a wide range of skill enhancement training with 100% subsidized courses, free educational content, and scholarships with leading universities and institutions worldwide. Additionally, it has been recognized as one of the companies contributing most to making the world a better place, according to Fortune magazine’s “Change the World” list for 2023 (www.santander.com/universities).

What Changes and What Doesn’t with Biden’s Withdrawal?

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New twist in the U.S. presidential race. Finally, Joe Biden, the current president and Democratic candidate, has announced his withdrawal from re-election, stating in a social media release, “in the interest of my party, the country, and my personal interest.”

In the same statement, Biden added, “Although my intention was to seek re-election, I believe that the best course for my party, the country, and myself is to withdraw and focus solely on fulfilling my duties as president for the remainder of my term.” While Biden has committed to addressing the nation in the coming days to provide more details about his decision, the big question now is who from the Democratic Party will challenge Trump. So far, Kamala Harris has confirmed her candidacy for the presidency, already receiving Biden’s explicit support.

In recent days, the pressure for Biden to make this decision had been mounting, but the doubts about his candidacy began with his performance in the debate against Trump. After the debate, Libby Cantrill, Head of Public Policy at PIMCO, explained that the decision to stay in the race was solely his, not the Democratic Party’s or the donors’.

“Biden currently controls 99% of the delegates, and what happens with those delegates is his decision. Of course, no candidate has withdrawn this late in the race. The party has planned its entire campaign around his candidacy, and it’s important to note that presenting a new candidate is incredibly complicated; there is no clear consensus alternative,” Cantrill said earlier this month. At that time, the PIMCO expert saw Biden’s withdrawal as “unlikely,” though he acknowledged that the chances were higher than before the debate. “If that outcome occurs, we believe an announcement will be made in the next week or two,” he noted. In this sense, Cantrill’s predictions have come true.

Another prediction gaining strength is that Trump will win the election. Just hours later, polls already show that his candidacy has been reinforced, as was the case after the assassination attempt he survived last week. For example, in a poll conducted by Bendixen & Amandi Inc., Kamala Harris has a one-point lead over Trump, surpassing him 42%-41%. However, according to a CNN and SSRS poll, the Republican candidate has 47% of the vote, while Harris has 45%, “a result within the margin of error suggesting no clear winner in such a scenario,” they explain.

The next step is clear: Democratic delegates will select a new candidate for the nomination just a few weeks before the Democratic Convention, in a race against time to garner the necessary support for the November elections. “So far, the only sure bet is Kamala Harris. Biden has expressed his support for the vice president, and she has accepted to take his place. Harris finds herself in a delicate position at a time when a Trump victory is being discounted. On the Republican side, Trump has proclaimed Ohio Senator J.D. Vance as the party’s vice-presidential candidate. Additionally, he announced some of his proposals, such as reducing the maximum corporate tax rate, imposing more tariffs, and keeping Powell as Fed chairman until the end of his term,” Banca March experts point out.

What Would Change

A clear change is that the scenario of a victorious Trump, explained by managers in their semi-annual outlooks, is gaining strength. For example, when Paul Diggle, chief economist at abrdn, addressed these scenarios, he pointed to one where Biden would win and three variants of a Trump presidency depending on the combination of policies.

In this sense, Diggle analyzed and measured the impact of Trump returning to the White House. “First, a Trump focused on the trade war, with a 30% probability. A divided Congress could see him pursuing those aspects of his agenda through executive order, drastically increasing tariffs. This would put upward pressure on inflation, lower growth, and slow or halt monetary easing,” he explained.

Secondly, Diggle contemplated, with a 15% probability, a scenario marked by an “all-out” Trump, combining trade measures with tax cuts and increased spending under a unified Congress. In his opinion, this would likely cause significant market volatility. And thirdly, “a market-friendly Trump focused on tax cuts, deregulation, and the appointment of establishment figures, with a 10% probability. The economy and risk markets could perform well,” Diggle pointed out.

Another aspect currently under debate is whether a second Trump presidency would mean higher inflation now that it seems to be subsiding. “In our opinion, Trump’s policy mix would likely be more inflationary than a continuation of Biden’s policies, implying that in 2025 the Fed would apply fewer rate cuts in this case,” noted Claudio Wewel, currency strategist for J. Safra Sarasin Sustainable AM.

In the opinion of Michael Strobaek, Global CIO of Lombard Odier, a second Trump administration would be more inflationary. According to Strobaek, the U.S. currency might appreciate further as the dollar is likely to rise in anticipation of additional tax cuts in 2025, “America-first” import tariffs, and the possibility of stricter immigration policies restricting the labor market.

“These inflationary pressures would lead to higher long-term bond yields and a steeper U.S. yield curve. This is one of the reasons why we prefer German bunds to U.S. Treasury bonds while maintaining exposure to global fixed income at strategic levels. In equities, we continue to favor non-U.S. markets, where valuations and market concentration risks are lower. We maintain U.S. stocks at strategic levels,” adds Lombard Odier’s Global CIO.

As Bloomberg explained this Saturday, “while the Republican Party has been trying to blame Biden for residual inflation, it is Trump’s plans that could undo the hard-won progress of the Federal Reserve.” In this sense, they noted that “economists warn that his policies, another round of tax cuts that, according to Democrats, will go to the wealthy, widespread tariff hikes to trigger another trade war with China, and immigration restrictions that Republicans blocked earlier this year, will wreak havoc on global trade and reignite inflation.”

In fact, a group of 16 Nobel laureates signed a letter stating that Trump’s arrival would bring higher prices. “Many Americans are concerned about inflation, and there is a legitimate concern that Trump will reignite it due to his fiscally irresponsible budgets,” they said in the letter. Among the signatories are George A. Akerlof, Sir Angus Deaton, Claudia Goldin, Sir Oliver Hart, Eric S. Maskin, Daniel L. McFadden, Paul R. Milgrom, and Roger B. Myerson.

What Wouldn’t Change

While Biden’s decision gives the campaign a major twist, some macro aspects may remain unaffected, as one of the main theses experts have defended so far is that, in terms of monetary policy or public deficit, for example, the electoral outcome wouldn’t matter.

For example, Steve Ellis, Global CIO of Fixed Income at Fidelity International, recently explained that in the medium to long term, there are even greater problems for the Fed. “Regardless of whether Biden or Trump wins in the November elections, we will likely see more budget deficits added to an outstanding U.S. public debt that already hovers around $35 trillion. To continue financing this and attracting investors, either real interest rates remain relatively high, or real yields do. That will limit the interest rate easing the Fed can apply, and considering that around 40% of the notional volume of high-yield debt in circulation will have to be refinanced at significantly higher levels over the next three years, the pressure on the U.S. economy will increase.”

Experts have also focused heavily on analyzing market behavior during other election processes. “Equity markets tend to welcome a decisive victory for Republicans in the White House and Congress, but have generally reacted worse to Republican presidents without absolute majorities. While returns are usually positive in election years—albeit a bit weaker than usual—they can rebound strongly once the elections are over,” explained Erik L. Knutzen, Chief Investment Officer and Multi-Asset Director at Neuberger Berman, at the end of May.