CC-BY-SA-2.0, FlickrPhoto: Ron Cogswell. The Two-Track U.S. Economy
Many market watchers interpreted the September U.S. jobs report as a bit of a disappointment, as jobs growth came in slightly weaker than expected. But I think it was a decent report, fairly in line with where I expect the U.S. economy to be given that it’s moving on two tracks.
What do I mean by that? We’re currently witnessing a U.S. economy in which both consumption and employment in the services sectors have been amazingly robust, while expenditures and employment in good-producing segments remain softer. The September report showed this longstanding trend is continuing, with strong employment growth in service sectors, such as health care and education, and especially in professional business services (up a strong 67,000 last month). In contrast, the manufacturing sector lost another 13,000 jobs, continuing short-term and long-term trends. In fact, manufacturing employment peaked in June 1979, roughly four decades ago, with nearly 20 million jobs in the sector (or 1 in every 5 employees). At its trough in 2010, there were only 11.4 million manufacturing jobs in the U.S. (or less than 1 in 10 employees).
There are both demographic and technological underpinnings behind this two-track trend, as an aging population and innovations in technology boost employment in service industries that tend to be much more labor intensive.
September’s labor force participation rate numbers are another sign of the trend, showing strong demand for human capital in today’s new economy is sending more people back into the workforce. Indeed, the participation rate has rebounded from 2015 lows, and is now back around 63%. See the chart below. The recent uptick in labor force participation is even more impressive when judged alongside an aging population, as many more people are exiting the workforce today (i.e., retiring) than we’ve experienced in prior decades.
The U.S. economy is also running along two separate tracks in another sense. We’ve seen strong employment growth in recent years, but merely decent levels of reported gross domestic product growth. Some say the incredible employment numbers reflect a poor-productivity economy. These arguments suggest that we have needed to hire many more people to produce a relatively smaller amount of goods, as if production and labor output were diminished in their ability to generate aggregate output. I believe this is a misguided interpretation of the economic landscape due to the fact that traditional productivity and output numbers don’t capture the downward influence of new technologies on prices.
The bottom line: The two-track trends evident in the September jobs report are just more signs that the U.S. economy is doing better than headline numbers may imply. So where does this leave us from a monetary policy perspective? The Federal Reserve can, and will likely, move policy rates at its December meeting, barring an unexpected shock to the economy or markets.
Build on Insight, by BlackRock written by Rick Rieder.
Photo: visitmonaco.com. HSBC clients in Monaco to join CFM Indosuez Wealth Management
CFM Indosuez Wealth Management, which represents the Indosuez Wealth Management network in Monaco, has announced an agreement with HSBC Private Bank to welcome clients from HSBC’s client base in the Principality of Monaco.
The firm said this agreement is in line with Indosuez Wealth Management Group’s strategy to bolster its positions with ultra-high-net-worth-individuals clients in its key markets.
The deal also strengthens CFM Indosuez Wealth Management’s leadership as the largest bank in Monaco.
“The referral process will begin immediately. CFM Indosuez Wealth Management will work closely with HSBC to ensure the smoothest possible process for the clients,” the company commented.
Indosuez Wealth Management had €110bn of assets under management at the end of 2015.
Photo: Pixabay. PwC Launches an Education Platform Addressing the Barriers to Financial Investing
European citizens are required, more than ever, to invest their savings on the capital markets to save for their future pension, while contributing to the financing of the European economy. At the same time, financial products and financial regulation are increasingly complex while investor education remain a challenge. In this context, PwC has just launched Buzz4Funds, an education platform dedicated to raising public understanding of financial investing, including through investment funds.
The primary goal for this programme, currently made up of a series of ten videos and a website, is to arm millennial investors with the unbiased and non-commercial information they need to make investing decisions.
“Investor education is complementary to the traditional tools of investment product information, financial reports and other required communications,” says Steven Libby, partner and Asset & Wealth Management Leader at PwC Luxembourg.
The Investor Education video series covers topics ranging from understanding the difference between saving and investing to the red flags of investment to selling.
“These funny videos aim to grab the attention of potential of future investors, triggering their curiosity to visit the dedicated website where they will discover explanations and links to additional material,” explains Nathalie Dogniez, partner at PwC Luxembourg
To watch the videos and discover the related messages, you can visit the Buzz4Funds website.
Amundi confirmed on Wednesday that it is interested in acquiring Pioneer Investments, UniCredit’s asset management arm.
Following rumours in the Italian newspaper Il Messaggero, concerning the submission of a non binding offer for the purchase of Pioneer by Amundi, Amundi issued a press release to confirm its interest in Pioneer, since it is “consistently with the growth strategy presented at the time of its IPO.”
However, in the same statement, Amundi denied the close to $4.39 billion valuation attributed to Pioneer in said article and specified that “Amundi re-iterates that its acquisition policy adheres to strict financial criteria, in particular, a return on investment greater than 10% over a three-year horizon.”
However it seems that Jean-Pierre Mustier, Unicredit’s new CEO and a former Société Générale executive, is set to part ways with Pioneer, which has been placed on UniCredit’s group-wide strategic review since last July, when he stated they would even consider a potential IPO. “This is to ensure the company has the adequate resources to accelerate growth and continue to further develop best-in-class solutions and products to offer its clients and partners.”
Publicly traded since November 2015, Amundi is the largest European Asset Manager in terms of AUM, with over 1,000 billion euros worldwide.
CC-BY-SA-2.0, FlickrPhoto: Alice Cavalier / LinkedIn / Andy Sedg . Alice Cavalier, New Senior Vice President of the Alternatives Team at PIMCO
PIMCO, a leading global investment management firm, announced that Alice Cavalier has joined the firm as a Senior Vice President in its alternatives team. In this new role, Cavalier will focus on the analysis of stressed and distressed investments in Europe. She will be based in the firm’s London office.
Cavalier joins PIMCO’s established alternatives team of 110 investment professionals globally. According to a press release, her hiring is part of the continued expansion of the firm’s alternatives investment platform and follows the hires of Paul Vosper, Executive Vice President and Real Estate Strategist and Lionel Laurant, Executive Vice President and Distressed Credit Portfolio Manager earlier in the year.
Cavalier joins PIMCO from Bayside Capital, the distressed debt and special situations affiliate of private equity firm HIG Capital. Prior to that, she worked as an analyst in the leverage & acquisition finance department at Morgan Stanley.
“Alice’s experience is a strong addition to our global team. Clients are continuing to diversify in their search for yield and alternative investment strategies are in high demand. We see excellent opportunities in the distressed credit market and expect this to continue for some time” said Laurant.
“We have hired more than 140 new employees this year and continue to recruit top talent from around the globe. Recent hires include over 40 investment professionals across alternatives, client analytics, emerging markets, mortgages, real estate and macroeconomics” said Dan Ivascyn, Managing Director and PIMCO’s Group Chief Investment Officer.
PIMCO manages approximately $26 billion in alternative investment strategies. The firm has developed and managed alternative strategies for more than 10 years, including a range of distressed credit and opportunistic strategies.
The Morgan Stanley Investment Management’s Global Fixed Income Team believes the upcoming months, including a full calendar of central bank policy meetings in September, will be key to watch as central banks reconsider their thinking, potentially shaking up the lull in sovereign bond markets.
Markets have been predicting more of the same over the next few months, and there is some chance expectations will not be met, in a bearish way. However, they said, adjustments will likely only result in a correction in government bond markets, as we maintain that the trend in central bank policy will be supportive of spread products and carry strategies. “But we are careful with our duration and do not want to be too long, given how far yields have fallen and how optimistic markets have been on monetary policy”, pointed out.
With moderate global growth and low inflation the most likely path forward and emerging market (EM) fundamentals stabilizing-to-turning, the Team believes EM debt should perform reasonably well.
“We continue to monitor signs that the credit cycle is maturing. However, we believe the strong technical backdrop afforded by easy central bank policy will continue to dominate the global fixed income markets going forward. Investors seeking returns will continue to buy global credit, while U.S. credit will likely outperform, as relatively attractive yields in the country will continue to attract foreign buyers”, concludes.
The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.
All information provided is for informational purposes only and should not be deemed as a recommendation. The information herein does not contend to address the financial objectives, situation or specific needs of any individual investor.
Any charts and graphs provided are for illustrative purposes only. Any performance quoted represents past performance. Past performance does not guarantee future results. All investments involve risks, including the possible loss of principal.
Prior to making any investment decision, investors should carefully review the strategy’s / product’s relevant offering document.For the complete content and important disclosures, refer to the pdf above.
Cathy Hepworth, Senior Portfolio Manager at Nordea. Courtesy photo.. "We Favor Select Opportunities in Commodity-Sensitive Africa, in Russia and Kazakhstan, and in Latin America and Asia"
Investing in EM debt needs a new perspective, according to Nordea. “In the current environment, however, we believe that successful investing in EM debt requires a nuanced approach that can capture idiosyncratic relative value opportunities, rather than simply underweighting countries exposed to macro headwinds or specific negative events ”, say Cathy Hepworth, Senior Portfolio Manager and Sovereign Strategist, PGIM Fixed Income, and Matthew Duda, Portfolio Specialist, PGIM Fixed Income. In this interview with Funds Society, they explain their view on the asset class.
How will a possible US interest rate hike affect emerging market debt?
We look for the Federal Reserve to take a measured approach to raising short-term rates which should be positive for EM debt—and the fixed income spread sectors in general—as there will likely be ample global liquidity still searching for yield in today’s historically low global rate environment. The Fed is expected to be appropriately cautious in light of the current combination of: 1) volatile global financial markets; 2) mixed U.S. and global economic data; 3) prospects of persistently low global inflation pressures; and 4) its more limited ability to react to downside shocks at this point.
Regarding the effect on EM debt, the sector has generally performed well during Fed hiking cycles. EM debt produced positive total returns following the start of the Fed hiking cycles of 1999-2000 and 2004-2006. It also outperformed other fixed income sectors for the three years following the start of the 1994-1995 cycle. This largely resulted from the sector’s excess starting yield, U.S. Treasury curve flattening—which we expect to occur again during the next hiking cycle—and the longer-term improvement in sovereign credit quality which significantly dampened default fears.
In the current environment, however, we believe that successful investing in EM debt requires a nuanced approach that can capture idiosyncratic relative value opportunities, rather than simply underweighting countries exposed to macro headwinds or specific negative events.
What are the greatest risks facing an emerging debt fund manager currently?
Current risks include, among others, the potential for a global recession, unexpected volatility from China, or a sudden EM specific or broader developed market political or economic event that drives investors to adopt a more “risk-off” appetite. It’s important to have the resources to research and understand different risks to identify the best opportunities in an individual country. EM fixed income investing is about accruing that knowledge over credit and market cycles.
Is it the right time to move back into emerging market debt with a view to the remaining part of 2016 and next year? Why?
We believe there are attractive opportunities in EM hard currency bonds at present, along with select local bond markets. EM debt has performed well so far in 2016, rebounding from below-average returns in 2015. Year-to-date returns through 31 August 2016 range from a high of about 14.5% for EM hard currency debt to about 7% for EM local currency debt (hedged to USD) and FX. We believe the low yields available in the developed world and the prospect of major central banks maintaining accommodative policies and quantitative easing programs make the valuations in EM compelling. EM quasi-sovereign and sovereign spreads are trading at the wider end of the post-financial crisis range. From a macro perspective, industrial production in EM is rebounding in major EM countries including Brazil, Mexico, Indonesia, Russia, and Colombia.
Other factors supporting EM debt include a weaker U.S. dollar relative to recent highs, some stabilization in the Chinese Yuan, a recovery in commodity prices, and an attractive valuation environment. Also, EM equities have outperformed developed market equities in recent months, which tends to be a leading indicator of the positive performance potential of other EM assets. Finally, investor inflows into EM debt are providing an added layer of support. When investing in EM debt it’s important to maintain a long-term view. In this manner, investors can benefit over time from market dislocations which create opportunities to buy fundamentally sound assets at a discount.
Where do prices stand at the moment? Are they attractive?
Although EM debt has rallied in recent months, we believe prices are still attractive relative to historical levels. For example, the spread on the sovereign JP Morgan EMBI Global Diversified Index as of mid-September 2016 was +330 bps, which is about +75 bps cheap to the tighter levels reached at the beginning of the second half of 2014 and about +160 bps cheap to pre-global financial crisis levels in 2007. We believe there is still good fundamental value in many individual sovereign and quasi-sovereign issuers that trade wide to the index level in spread. Importantly, while some of these issuers may be rated below investment grade, we believe there are numerous opportunities to take advantage of mispriced risk.
In EM, it is often the case that political and policy uncertainty leads to volatility that is not commensurate with an issuer’s underlying fundamental value. It is these sell-offs that often lead to the most attractive opportunities in the sector. For example, there are currently many such opportunities in select “Next Gem” or “frontier” countries in Africa and Asia, as well as larger countries such as Indonesia, Russia, Brazil, Mexico, Argentina, and Venezuela. In the local bond markets, the average yield relative to developed market yields is still very attractive at over 6.25% as of mid-September. A number of EM countries are cutting rates, or are nearing the end of their hiking cycles, which is generally an indicator that rates are poised to rally.
And currencies? Have they bottomed out across all emerging markets?
In EMFX, we believe valuations relative to historic ranges are attractive in select Latin American and EMEA countries. The recovery and stabilization in commodity prices, bottoming out of EM economic growth, improved current account balances, and more benign global interest rate outlook should all support EMFX in the coming months.
Which geographical regions do you like most? Asia, Latin America, Eastern Europe…
Our portfolios are diversified and seek to take advantage of opportunities across multiple EM regions and EM sectors. Currently, we favor select opportunities in commodity-sensitive Africa, in Russia and Kazakhstan, and in Latin America and Asia, including Indonesian sovereign, quasi-sovereign, and local bonds.
On which Latin American markets are you focusing?
We’re finding value in Brazil, Mexico, Argentina, Venezuela and the Dominican Republic. We evaluate the broad range of Latin American fixed income markets, including sovereigns, quasi-sovereigns, corporate bonds, local bonds and FX.
After difficult and still ongoing economic and political adjustments, we believe that select Brazil sovereign and quasi–sovereign issuers, including commodity-related quasi-sovereigns, can offer value. In Mexico, we like certain corporate issuers relative to the sovereign debt. In Argentina, the bonds of the larger provinces and energy-related bonds look attractive, along with exchanged bonds of the sovereign. Among smaller issuers, we view the Dominican Republic as an improving credit, and believe that El Salvador bonds are trading at attractive levels relative to default risk. In Venezuela, many bonds trade at levels that are attractive to expected recovery value, and we think very near maturity bonds will be paid.
In local currency bonds, we like the short-intermediate and long-end of the Mexican yield curve. In local Brazil, we look for an interest rate cutting cycle to begin this year and continue into next year. Here, we prefer a mix of nominal and inflation-linked bonds given that real rates are high. Finally, we believe there is value in the Mexican peso given that it is trading cheap relative to fundamentals and when evaluated from a real effective exchange rate perspective.
Nordea has recently registered the fund Nordea – 1 Emerging Market Bond in Chile. Do you believe that emerging debt is an attractive option for Latin American investors?
One of the benefits of investing in EM debt is its diverse geographic exposures and types of securities. A Latin American investor can benefit from the diversity of commodity sensitivities(i.e. exporters and importers), as well as varying industry and country economic growth trends. With more than 60 EM countries to choose from, investors and asset managers can potentially take advantage of numerous relative value opportunities through market cycles. Historically, investing successfully in EM debt entails diversifying risks, having a long-term view, and understanding that even though the markets appear unfavorable at times, EM debt tends to bounce back fairly quickly following a global shock or sell-off.
Youth on smartphones. "Generation Stress"? Today's Youth Wants Everything at Once
The 2016 Credit Suisse Youth Barometer illustrates how the growing variety of goals in life and the more and more widespread use of smartphones and apps are increasingly turning young people into a “stress” generation. The survey also shows that politics on the web works: The fact that political issues can be commented on and discussed online is viewed positively.
The young people surveyed in Switzerland, the US, Brazil, and Singapore want to have it all in life: a career, but with a good work-life balance; to be independent and to work at an international company; to save less, but also own their own home. And with all activities, they are constantly online, communicating with each other, consuming news, playing games, and discovering new apps. This leads to the conclusion that young people today are turning into a “stress generation.”
Politics on the Web Works
Apart from in Singapore, young people’s interest in politics is growing in all the countries surveyed. At the same time, politicians around the world are trying to reach young people more intensively than ever through the internet and social media. A majority of respondents sees it as positive that political issues can be commented on and discussed online: They view this as a benefit for politics. However, young people are also aware of the negative side of the virtual world – above all with regard to so-called “shitstorms” and potentially manipulated political content on Facebook and Twitter. Having said this, there is broad agreement, especially in the US and Brazil, with the statement “Facebook, Twitter, and online comments make politics more interesting and motivate users to become more politically engaged.”
Worries about Unemployment, Terrorism, and Healthcare Issues
In the US, unemployment, terrorism, and healthcare are the most widespread issues. Somewhat contrary to their reputation, young Americans are adapting less quickly to new technologies than their counterparts in Switzerland, for example: Lively use is still made of text messaging, while WhatsApp has barely established itself. Snapchat is also described as less “in” there than in Switzerland.
In Brazil, corruption and unemployment are mentioned by over two-thirds of young people; neither topic appears in the top five in Switzerland. Various results suggest that young people from the South American country have a great interest in digital technologies.
In Singapore, respondents cited inflation and health issues as the second and third most important problems facing their country. The top issue is terrorism. Fear of attacks has increased markedly in recent years: In 2013, this was identified as a problem by just 11% of respondents; nowadays it’s 38%.
Overview: The Ten Most Important Insights from the 2016 Credit Suisse Youth Barometer
Unemployment remains one of the main concerns: The tense economic climate in recent years is also reflected in the Youth Barometer. Job concerns are one of the most frequently cited problems in all countries except for Switzerland.
Fear of terrorism is growing: The many attacks around the world have increased fears of terrorism. In Singapore it comes first, in the US second, and in Switzerland sixth in the worry ranking list. While 13% of Swiss citizens described terrorism as a major problem back in 2010, this has now risen to 23%.
Optimistic view of the future: Despite their concerns, the young people surveyed, who were born between 1991 and 2000, view the future with optimism, although somewhat less than in earlier years. Swiss youngsters display the most optimism (59%). The majority of the youth in Brazil (54%) also expects things to turn out well – but this is down from 67% in 2010. Fifty-two percent are of this opinion in the US and 43% in Singapore.
Credibility of the web decreasing: A large majority is aware that postings on Facebook, Twitter, and the like can be manipulated. And only a minority believes these comments to be honest and genuine (exception: Singapore). There is awareness everywhere that there are so-called trolls on the web, whose intentions are not honest.
Widespread experience of cyber-mobbing: Many of those surveyed reported negative experiences on the internet. 40% in the US, 39% in Switzerland, 33% in Singapore, and 26% in Brazil claimed to have been harassed or even mobbed on Facebook.
Snapchat on the rise: While text messaging is continuing to gain importance in the US and Singapore, it only remains in use by a minority in Brazil and Switzerland. New favorite: Snapchat. Fifty-two percent of those surveyed already make use of the communication service in Switzerland.
Saving for home ownership: Home ownership is the greatest financial desire in all countries. And the low interest environment of the last few years has left its mark. If given 10,000 units of their national currency, the young people would pay less into their savings account than in 2015. Instead, putting money aside to buy a home, buying equities and funds (US, BR, SG), going on vacation (BR, SG, CH), and investing in the family (US, BR, SG) are popular desires.
Many goals in life: Those surveyed have many goals in life, some of which are also contradictory. The following are supported by over 50% in all countries: “a good work/life balance,” “pursuing one’s own dreams,” “home ownership,” “developing one’s own talents,” “trying out different things,” “pursuing a career,” “family with children,” “getting to know many countries and cultures.”
Self-employment is a frequent career aspiration: Questioned about their preferred employer, many young people say they would like to be self-employed. One exception is Switzerland where self-employment is not sought after so broadly. The most popular employers are: 1. Google, 2. SBB, 3. Novartis, 4. Roche, 5. Credit Suisse. The home office is increasingly gaining in popularity: Apart from in Singapore, where working from home has for a long time been most popular, considerably more of those surveyed consider this option to be important than in 2015 in all the countries surveyed.
Established religions continuing to lose ground: Between 22% and 34% of those surveyed describe themselves today as agnostic/atheist/undenominational. Just two years ago it was between 5% and 13%. The established religions are therefore losing ground among those surveyed despite still attracting majorities.
The detailed analyses of the study, including information graphics, can be found at the following link.
CC-BY-SA-2.0, FlickrMichel Tulle - LinkedIn. Michel Tulle, New Senior Director of Southern Europe and Benelux at Franklin Templeton
Franklin Templeton has appointed Michel Tulle as senior director of Southern Europe and Benelux.
Tulle, currently based in Buenos Aires, will report from Paris as of January 2017 to Vivek Kudva, managing director of EMEA, and responsible for the coordination and development of the business in this area.
With over 27 years of experience in the financial sector, of which 21 have been within Franklin Templeton, Tulle “will ensure strong leadership in his new role”, the asset manager said.
Co-heads of Italian branch
Antonio Gatta, former institutional sales director, and Michele Quinto, former retail sales director, where also appointed co-heads of the Italian branch as of September 30 2016. In their new role Gatta and Quinto will report to Tulle.
“The appointment of Michele Quinto e Antonio Gatta represents a significant recognition towards our important path of development implemented in recent years on the Italian market,” Tulle said.
CC-BY-SA-2.0, FlickrPhoto: ING Group
. Asset and Wealth Management Sector Seems Oblivious of FinTech Opportunities
PwC’s 2016 Global FinTech Survey ranked the asset and wealth management sector as the third most likely to experience the game-changing impact of FinTech startups. In order to succeed in this new landscape, asset and wealth managers need to adapt and engage with FinTechs.
60%of asset and wealth managers think that at least part of their business is at risk to FinTech. When asked about any type of threat, asset and wealth managers were the least concerned of all financial services industry players. They believe FinTech will have only a limited impact on their businesses, with 61% of respondents expecting an increased pressure on margins, followed by concerns around data privacy (51%) and loss of market share (50%).
Julien Courbe, PwC’s Global FS Technology Leader, says: “Banking and payments industries offer palpable examples of FinTechs changing the financial sector by offering new solutions that are visibly disturbing traditional players. This should be an eye-opener for asset and wealth managers as they are next in line, while their FinTech mind-set is still in its infancy. For instance, over a third (34%) do not yet engage with FinTech companies at all, while collaboration with FinTechs is crucial and will be the only way for the traditional firms to deliver technological solutions at the speed expected by the market. We strongly believe incorporating FinTech solutions will visibly strengthen their market position.”
Data analytics was identified by 90% of the asset and wealth managers as the most important trend for the next five years. Followed by automation of asset allocation as “robo advisors” are putting pressure on traditional advisory services and fees. Unsurprisingly, when it comes to investments asset and wealth managers choose new technologies related to data analytics and automated asset allocation rather than expanding their digital and mobile offerings. Only 31% of asset wealth managers provide their clients with mobile applications, lagging behind all other financial players.
Julien Courbe says: “With ‘robo advisors’ becoming more sophisticated, they create an opportunity for asset managers to target the mass affluent who are looking for cheaper alternatives to receive advice on how to manage their assets. The key is to find the balance between human and technological interaction to create an omni channel experience at the speed expected by the market.”
