After more than nine years, on Wednesday, the Federal Reserve of the United Stated made true to its promise of raising interest rates in 25 basis points moving from near zero to the range of between 0.25-0.5%. It also stated it would not shrink its balance sheet until rate normalisation was ‘well under way’. Though policy remains extraordinarily accommodative, this is the first small step toward interest rate normalization since the financial crisis.
Markets took the Fed’s hike very much in their stride. 2-year yields rose by 2 basis points to 1.00%, but 10-year yields were a touch softer at 2.29% at the time of writing. The dollar inched higher against the euro, yen and on the Bloomberg DXY basket. While stocks reacted to the message of the Fed’s confidence in the economy the S&P 500 index rose 1% to 2074.
What will happen next? The Fed continues to project an expectation of four rate hikes next year, describing these as gradual, with no fundamental shift in its other economic projections to signify a more dovish outlook than in September. But, according to David Page, Senior Economist at AXA Investment Managers (AXA IM), this means that “the Fed failed to deliver a ‘dovish hike’. We continue to expect a tightening in financial conditions to lead the Fed to deliver just three hikes next year. Yet financial markets took today’s move in its stride, with little today deviating from broad expectatios…we consider the likelihood that the Fed has seen insufficient evidence of inflation pressures to justify a move in March and we forecast the next move in June.”
Goldman Sachs Asset Management said that they think the Fed’s action amounts to a cautious hike, and that “based on current forecasts, we believe the trajectory of interest rates will be shallow. Given the positive trends in the US labor market, we expect the Fed’s main focus in the coming months will be on inflation, financial conditions—particularly dollar strength—and economic growth.” They also expect three hikes in 2016 but “We believe the Fed could raise interest rates again in March if inflation rises and financial conditions stabilize. Our current expectation is for an additional three increases in 2016, but the path remains uncertain.” They cited that the dollar’s strength was among the key factors—along with broader financial conditions and weak external demand—in the Fed’s decision to postpone tightening in both June and September this year.
In regards to the Fed’s announcement of a modification of its balance sheet policy -suggesting that it would not stop or taper reinvestment of maturing Quantitative Easing (QE) assets until normalisation was ‘well under way’ (previously it had simply said this would start after lift-off), Page commented that ” this was a clarification that we had long anticipated and echoed a similar recent statement by the Bank of England.”
Fed Chair Yellen’s press conference did little to overtly suggest a more dovish assessment. She was questioned on the inflation outlook and repeated that actual progress was required, but refused to be pinned down on any metric or timeframe of such an assessment. She highlighted the FOMC’s assessment that risks were balanced. The Fed Chair provided the Fed’s justification for a hike, which having fulfilled the conditions posed by the Fed was broadly to avoid the risk of the need for a future abrupt tightening, which she said might increase the chances of prompting recession. She also emphasised that the Fed’s policy outlook was for an expectation of gradual tightening and one that would likely not be even-paced.
Economic forecasts saw little change:
the median estimate of Q4 year on year GDP was nudged higher to 2.4% from 2.3% in 2016, but were otherwise unchanged;
unemployment was forecast marginally lower at 4.7% from 2016 onwards (from 4.8%);
and headline and ‘core’ personal consumption expenditure (PCE) inflation was forecast marginally lower to 1.6% (from 1.7%) in 2016, but was otherwise unchanged.
Longer run estimates of the these factors were unchanged.
Moreover, the Fed saw little adjustment in the median estimate of future rates, although some of the higher forecasts were lowered.
GSAM agrees saying that they “do not believe this modest policy adjustment is likely to derail a US recovery that has momentum. As a result, we remain pro-cyclical in our investment outlook, with equities remaining our favored asset class at this stage of the cycle.” Although their growth expectations are slightly lower, moderating from 2.4% this year to 2.2% in 2016.”
“In emerging markets, we think commodity prices, Chinese growth and local fundamentals are more important than Fed policy. Markets have had a long time to adjust to the prospect of higher US rates and we believe emerging market assets have largely priced in a modest course of Fed tightening. As a result, we continue to believe emerging market assets will be driven primarily by local fundamentals,” concluded GSAM.
Robert C. Serenbetz, analyst on the CIO Americas Team in Private Banking Americas at Credit Suisse, shares his outlook for Latin America, which continues to be negative as industrial production momentum falls.
Industrial production continues its declining trend likely leading to lower output and growth.
CDS spreads on Brazilian debt have risen considerably this year; however, the cost of protection has fallen recently as some steps have been taken to address economic reforms.
Rising inflation along with increasing unemployment and some painful tax hikes are placing a large portion of the Brazilian population in an increasingly disparate position. Simultaneously, these same factors are hurting corporate expectations.
According to the BofA Merrill Lynch Fund Manager Survey for December, a majority (58 percent) of global investors expect the U.S. Federal Reserve (Fed) to raise rates three times or more in the coming 12 months.
The survey where an overall total of 215 panelists with US$620 billion of assets under management participated in from December 4 to December 10, 2015 noted that:
More than half of the panel (53 percent) says long U.S. dollar is the “most crowded trade,” up from 32 percent in November.
Thirty-five percent say the end of the Fed hiking cycle is the event most likely to end the U.S. dollar bull market.
Risk-taking fell. Cash rose to 5.2 percent of portfolios from 4.9 percent last month.
A net 43 percent of regional fund managers expect China’s economy to weaken in 2016, up from a net 4 percent last month.
Weighted average GDP growth projections for China in 2018 have fallen to 5.5 percent from November’s 5.9 percent.
A net 29 percent of asset allocators are underweight commodities, up from a net 23 percent in November.
As investors increase U.S. equities underweights, Europe and Japan are most favored regions for overweights in 2016.
Investors emphasized a focus on quality, with a net 65 percent saying that high-quality earnings stocks will outperform low-quality earnings stocks in 2016.
“The strong dollar view is writ large across all asset, regional and sector allocations. It will take a very dovish Fed and weak U.S. earnings to reverse the strong dollar view in 2016,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“European equities remain in favor despite disappointment over the ECB decision,” said James Barty, head of European equity strategy.
A total of 175 managers, managing US$517 billion, participated in the global survey. A total of 106 managers, managing US$241 billion, participated in the regional surveys.
You can read the full results in the following link.
Following ECB regulatory approval, Franco-German financial services group Oddo&Cie is set to take over private banking and asset management group BHF Kleinwort Benson Group.
The ECB’s approval is conditional to the implementation by the Oddo Group of a capital increase of €100m and to the fact that the Group joins the German guarantee funds deposit.
The capital increase has already been approved by Oddo&Cie shareholders, the group is now awaiting the final confirmation from the German guarantee funds deposit (Prüfungsverband Deutscher Banken) is under process, as well as the approval of the prospectus by the Belgian Financial Services and Markets Authority (FSMA).
Philippe Oddo, managing-partner of Oddo & Cie, said: “The green light from the European Central Bank is an important milestone in our project of acquiring the BHF Kleinwort Benson Group and thus of giving rise to a unique Franco-German group.”
2015 has been a year of acquisitions for Oddo, starting with the takeover of Seydler in Janaury followed up by the acquisition of fomer BNY Mellon boutique Meriten.
The acquisition of BHF Kleinwort Benson, which currently manages about €58.5 billion in assets would provide a significant boost to the group’s assets under management.
Foto: Dennisilekeller, Flickr, Creative Commons. Julius Baer compra la entidad de banca privada de Commerzbank en Luxemburgo
Julius Baer has announced that it has agreed to acquire Commerzbank International SA Luxembourg, a well-established and fully-licensed private banking franchise with close to EUR 3 billion assets under management, from Commerzbank AG. This transaction will significantly strengthen Julius Baer’s position in the Luxembourg financial centre.
CISAL’s client assets are booked on a Temenos T24 banking platform. CISAL’s staff includes a highly experienced IT team with relevant expertise of the Temenos T24 technology. As announced earlier this year, Julius Baer has selected Temenos as its partner for the planning of its core banking platform renewal project. The total consideration is approximately EUR 68 million, assuming EUR 25 million of regulatory capital is transferred as part of the transaction. Total restructuring and integration costs are expected to amount to approximately EUR 20 million.
Closing of the transaction is expected to take place in the summer of 2016, subject to regulatory approvals and following the unbundling of the local IT platform. After closing, Julius Baer’s Luxembourg-based business will manage total assets of around CHF 5 billion on a pro forma basis. The transaction will be accretive to adjusted earnings immediately following closing.
Boris F.J. Collardi, CEO of Julius Baer, commented: “The acquisition of a fully-licensed bank in Luxembourg as well as the Temenos-based booking centre and the related IT expertise provide us with important strategic flexibility for our European businesses. Furthermore, it strengthens the implementation of our global banking platform project by aligning Europe with our Swiss and Asian platform strategy, thus reducing the execution risk.”
Gian A. Rossi, Region Head Northern, Central and Eastern Europe, added: “The acquired entity is a pure private banking business with a stable base of European clients and hence fits very well with Julius Baer’s business approach and strategy. We are pleased to add significant scale to our local franchise in the important international financial centre of Luxembourg and look forward to leveraging the business opportunities provided by the full bank licence.”
Foto: Neetalparekh. AXA IM lanza una SICAV en Luxemburgo para inversiones verdes
AXA Investment Managers (AXA IM) recently launched the AXA WF Planet Bonds fund, a green bonds fund that aims to support clients’ transition to a low carbon economy by providing investors with access to the growing global green bonds market.
Commenting on the launch, Andrea Rossi, CEO of AXA Investment Managers, said: “As long-term investors we recognize the threat of climate change and the need to mitigate the potential impact on the global economy… We are also able to support clients’ transition to a low carbon economy, for example, through offering investment in green bonds.”
The AXA WF Planet Bonds fund invests in both pure green bonds and bond issuers with a high environmental impact with the aim of ensuring sufficient diversification and liquidity. AXA IM’s Global Rates team in collaboration with the Responsible Investment (RI) team runs it.
Olivier Vietti, Lead Fund Manager of the AXA WF Planet Bonds fund, commented: “We feel the bond market is a natural vehicle to support energy efficiency, renewable energy and other projects related to climate change, as bonds can provide a direct and transparent way for investors to invest in low carbon solutions. This fund aims to offer an attractive yield meaning responsible investors do not have to ‘give up’ yield, relative to the wider fixed income universe, when investing to make a positive environmental impact.”
A key attribute of the Fund is its highly robust investment selection process, which is also flexible and unconstrained from a benchmark to avoid any bias from following an index. In the selection process issuers in the eligible investment universe are ranked according to AXA IM’s internal ESG (environment, social and governance) assessment process to determine which issuers have high environmental conviction and therefore present a solid case for green investment. The Fund aims to be well diversified and offer an attractive yield and risk vs return profile by focusing on yield enhancement and investing in investment grade and high yield issuers.
Matt Christensen, Head of Responsible Investment at AXA IM, commented: “This solution also offers the possibility for investors to be aware of the type of projects that will be financed through their investment, including wind farms, green commercial buildings, public transport solutions and waste water systems.”
Jerome Broustra, Head of Global Rates at AXA IM, added: “AXA IM has been active in the green bonds sector since 2012 and we have already invested EUR 1 billion globally in this market segment. Despite its massive growth over the last year, this market is still relatively small and we want to support its development.”
The AXA WF Planet Bonds fund is a Luxembourg-domiciled SICAV. The Fund has both retail and institutional share classes and is registered for distribution in France, the Netherlands, Sweden, Finland, Norway, Denmark, Austria, Belgium, Germany, Italy, Spain and the UK.
Schroders announced the launch of Schroder ISF EURO Credit Absolute Return, managed by Patrick Vogel and the European credit team. The fund aims to provide a positive annual return throughout the market cycle and uses the same investment process that has delivered first quartile performance across four credit strategies.
The strategy combines traditional top-downviews with the credit team’s innovative themes based credit process, which identifies global trends and applies in-depth business model analysis to determine which issuers will benefit and which are vulnerable to these trends.
The credit team currently manage EUR 8 billion on behalf of clients around the world and has delivered 5.1% per annum in the flagship investment grade strategy over 3 years. The fund managementteam are part of an integrated fixed income platform of over 100 investment specialists based across the globe.
EFAMA welcomes the debate on retail financial services launched by the European Commission’s Green Paper on retail financial services.
EFAMA believes it is crucial to continue working to rebuild confidence in financial markets. Investors’ interests must remain at the heart of the project for a Capital Market Union. Only with their confidence, is this or any project that seeks to deepen the single market for retail financial services likely to succeed.
EFAMA very much supports the promotion of financial literacy and investor educationat EU and national levels. Better informed and educated investors can better assess the choices and the products available to them.
EFAMA has strongly supported recent regulatory pieces such as MiFID II and PRIIPs as they go far in setting further transparency and strict disclosure rules. These are considerable improvements within the regulatory environment. In line with this, EFAMA fully agree that consumers need to be able to compare products to make an effective choice.
In the drive towards more single market, EFAMA fully backs the Commission in its much welcomed objective to facilitate the cross-border provision of retail financial services such as investment funds. Indeed, as the Green Paper points out, some remaining obstacles stem from an inconsistent enforcement of EU legislation across the EU. These gold plating practices at national level need to be addressed.
Finally, EFAMA wholeheartedly supports the creation of a single market for personal pensions, and the development of a Pan-European personal pension products (PEPP) in line with the ongoing work that EIOPA is undertaking and the objectives of the Commission in its CMU Action Plan. The current fragmentation of the market makes economies of scaleimpossible to achieve and limits the choice of pension products and pension providers. A Pan-European personal product would provide more options and better returns for savers and retail investors.
Ashburton Investments, the asset management business of FirstRand Group, is buying Atlantic Asset Management, a South African independent firm specialized in fixed income investments, according to information published by Investment Europe.
Effective 1 January 2016, the deal will add to Ashburton’s existing fixed income business, adding Atlantic’s expertise in social impact investments. The Atlantic fund range will be rebranded and incorporated into Ashburton Investments, but the mandates and teams will remain in place.
Atlantic CIO, Arno Lawrenz, will be appointed head of fixed income portfolio management at Ashburton. Heather Jackson, CEO of Atlantic Specialised Finance, will work with the alternatives experts within Ashburton.
Boshoff Grobler, CEO of Ashburton Investments, said: “Atlantic has some of South Africa’s best expertise in the traditional fixed income and money market space, as well as being pioneers in social impact investing. We believe their entrepreneurial spirit and their investment philosophy is a perfect match for ours and that our combined experience consolidates Ashburton’s ability to offer clients a stand apart fixed income offering.”
The acquisition will also help position Ashburton favorably in respect of what it sees as an ongoing shift in asset allocation by institutional investors. Grobler said that assets such as South African unlisted credit represent a high quality opportunity, in which institutional investors are under invested. Grobler added that Ashburton Investments was now very well placed for the ongoing shift in asset allocation by institutional investors.
Foto: Juergen Trautmann, Flickr, Creative Commons. Irlanda implementa ELTIF, la regulación europea de los fondos de largo plazo
Finance Minister Michael Noonan has announced that Ireland has adopted the Eltif regulation.
Eltif application forms are available from the Central Bank of Ireland and it has confirmed that it is ready to accept Eltif applications.
Commenting on European Long-term Investment Funds, Pat Lardner, Chief Executive of Irish Funds, said: “Eltifs represent a key component of the European Commission’s initiative on Capital Markets Union (CMU) and aim to promote cross-border long-term investment in projects such as infrastructure, sustainable energy and new technologies.
“As a leading centre for cross-border Alternative Investment Funds (AIFs), Ireland is well-positioned as a location to domicile, manage and service Eltifs. Ireland already has significant experience in the long-term investment space with a range of infrastructure, green and real asset investment funds established here.”
Irish Funds responded to the ESMA consultation on Regulatory Technical Standards for Eltifs in October and will propose enhancements to the Eltif framework in its submission to the European Commission Call for Evidence on the EU Regulatory Framework for Financial Services.
Irish Funds continues to engage with the Central Bank on matters relating to Eltif implementation and has a dedicated Eltif Working Group of industry experts.
Regulation (EU) 2015/760 on European long-term investment funds took effect on 9 December 2015.
