On the market:
Eurozone data this week was not as comprehensively negative as in recent weeks. Although new
industrial orders for September fell sharply (-6.4% after +1.4%), PMI data for November edged up to 47.2 from 46.5 due to a better showing from the services sector (47.8 vs. 46.4). Germany’s IFO index also rose slightly in November to 106.6 (+0.2)……
Edmond de Rothschild Group (Market Outlook: 25/11/2011)
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The ECB has spent close to EUR 200bn on sovereign debt purchases and is now considering providing medium term liquidity to banks over 2-3 years.
The downward revision in US third quarter growth from an initial 2.5% to 2% is mainly due to a more negative impact from inventories. Other components were only slightly revised down apart from net exports which were revised up. Government consumption, which had been very negative for several quarters, was neutral. Looking more closely at the data, confirmation of a sustainable improvement in local authority tax receipts should lead to higher spending. That would mean employment; an unprecedented 650,000 public sector jobs have been lost in the last 3 years. The contribution of local authorities to overall growth was still negative in the quarter but it was the best figure in four quarters and the recovery is expected to continue.
The downward revision in US third quarter growth from an initial 2.5% to 2% is mainly due to a more negative impact from inventories. Other components were only slightly revised down apart from net exports which were revised up. Government consumption, which had been very negative for several quarters, was neutral. Looking more closely at the data, confirmation of a sustainable improvement in local authority tax receipts should lead to higher spending. That would mean employment; an unprecedented 650,000 public sector jobs have been lost in the last 3 years. The contribution of local authorities to overall growth was still negative in the quarter but it was the best figure in four quarters and the recovery is expected to continue.
EUROPE
Another tricky week on European markets! Macroeconomic news added to the gloom: another downgrade for Portugal, comments from Moody’s and Fitch on France’s “fragile” triple A rating while another German rejection of eurobonds has deprived the eurozone of a remedy for financial stress.
In Spain, the right wing party won an absolute majority and the new government will have to tackle the problem of the country’s banks. This will probably mean creating a bad bank and certainly involve saving another firm, Banco Valencia.
Meanwhile, for the first time since the sovereign crisis got under way, Germany failed to sell all the bonds in a new issue and the Bundesbank had to mop up 40% of the auction.
Most companies still seem to be in control of the situation. At its investors’ day, MTU Aero confirmed the uptrend for all its divisions in 2012 even if the pace of progress will be reduced. The UK’s Centrica (electricity generation) says weather conditions depressed business this autumn but the impact will be made good on the bottom line by lower tax and financial charges.
In banks, Santander placed 7.8% of its Chilean subsidiary and BBVA issued a convertible bond in exchange for preference shares.
The biggest shock came from Thomas Cook (tourism) which postponed releasing its results pending a refinancing agreement with its banks. The economic slowdown has really hit its business. The stock plummeted 75% on the news and was still 50% lower by the end of the week.
In Spain, the right wing party won an absolute majority and the new government will have to tackle the problem of the country’s banks. This will probably mean creating a bad bank and certainly involve saving another firm, Banco Valencia.
Meanwhile, for the first time since the sovereign crisis got under way, Germany failed to sell all the bonds in a new issue and the Bundesbank had to mop up 40% of the auction.
Most companies still seem to be in control of the situation. At its investors’ day, MTU Aero confirmed the uptrend for all its divisions in 2012 even if the pace of progress will be reduced. The UK’s Centrica (electricity generation) says weather conditions depressed business this autumn but the impact will be made good on the bottom line by lower tax and financial charges.
In banks, Santander placed 7.8% of its Chilean subsidiary and BBVA issued a convertible bond in exchange for preference shares.
The biggest shock came from Thomas Cook (tourism) which postponed releasing its results pending a refinancing agreement with its banks. The economic slowdown has really hit its business. The stock plummeted 75% on the news and was still 50% lower by the end of the week.
In France, companies are using the current situation to step up restructuring. Arkema (chemicals) is to sell its nonstrategic vinyl products business to Switzerland’s family-held company Klesch. The division still represented 15% of sales compared to 24% in 2005 and had been losing money for 4 years due to overcapacity in the sector and strong exposure to Europe’s construction sector. Arkema shares traded higher on the news. Lafarge is to replace its business organisation
(cement, granulates and concrete) by a country breakdown. This is part of its EUR 500m cost-savings programme but its exact impact was not revealed. To solve its financial problems, Groupama (insurance) is apparently willing to sell Gan Assurances, the fourth biggest network of tied agents in France. Gan is valued at between EUR 700m and 1bn. Axa, Allianz and Covea (MMA, Maaf, GMF) have shown an interest.
(cement, granulates and concrete) by a country breakdown. This is part of its EUR 500m cost-savings programme but its exact impact was not revealed. To solve its financial problems, Groupama (insurance) is apparently willing to sell Gan Assurances, the fourth biggest network of tied agents in France. Gan is valued at between EUR 700m and 1bn. Axa, Allianz and Covea (MMA, Maaf, GMF) have shown an interest.
The civil aviation sector continues to thrive. Zodiac has released robust results with operating profits in the cabin interior division up by 76%. The company now thinks it can beat its target of a 40% rise in sales over 3 years In the luxury sector, all the Hermès family shareholders are to transfer their stakes to a holding company to thwart any initiatives from LVMH which owns 24.1% of Hermès. This will put 50.2% of Hermès International in safe hands. The deal should be completed in the middle of December. Only Nicolas Puech (6% of the capital) refused to comply.
US
In a shortened trading week due to Thanksgiving, US markets continued lower. The failure of the supercommittee to find a compromise on reducing government spending will mean automatic cuts of USD 1,200bn over 10 years. At the economic level, no clear trend emerged from indicators either up or down. But October’s durable goods orders excluding transport came in at +0.7% when zero was expected. And the University of Michigan confidence index hit a high not seen since June even if the figure was slightly below expectations. Lastly, October household consumption continued higher but at a more modest pace while September’s figures were revised up.
In company news, Hewlett Packard’s third quarter results were generally in line with consensus expectations and the group has given conservative guidance for 2012. Meg Whitman, after her first quarter as CEO, said she was going to refocus the group on its core businesses and accelerate investment on research. In healthcare, Medtronic beat expectations both as concerns sales and earnings. The company has reaffirmed its forecast for 2012.
Over the last five days, all sectors lost ground led by financials and materials.
In a shortened trading week due to Thanksgiving, US markets continued lower. The failure of the supercommittee to find a compromise on reducing government spending will mean automatic cuts of USD 1,200bn over 10 years. At the economic level, no clear trend emerged from indicators either up or down. But October’s durable goods orders excluding transport came in at +0.7% when zero was expected. And the University of Michigan confidence index hit a high not seen since June even if the figure was slightly below expectations. Lastly, October household consumption continued higher but at a more modest pace while September’s figures were revised up.
In company news, Hewlett Packard’s third quarter results were generally in line with consensus expectations and the group has given conservative guidance for 2012. Meg Whitman, after her first quarter as CEO, said she was going to refocus the group on its core businesses and accelerate investment on research. In healthcare, Medtronic beat expectations both as concerns sales and earnings. The company has reaffirmed its forecast for 2012.
Over the last five days, all sectors lost ground led by financials and materials.
JAPAN
After hitting fresh year lows for two straight days in a row, the Topix ended a holiday-shortened week down 0.9% in JPY and 0.8% in EUR. Fears over potential sovereign debt downgrades in France and then possibly the US following the bipartisan committee’s failure to agree on budget deficit cuts weighed on sentiment all week. The TSE, which is to merge with Osaka extended daily trading by 30 minutes but volumes remained sluggish at an average of JPY 887bn, the second lowest levels to date. The JPY/USD and JPY/EUR forex rates were little changed with official intervention away from the limelight. Shipping and steel sectors were sold off most as emerging markets seemed to be losing steam. Steel makers Nippon and Sumitomo plunged by more than 6%. Non-life insurers Tokio Marine and MS&AD were also hit hard, both down 5%, as the Thai floods have caused at least JPY120bn damage to aggregate operating profits at firms with affiliates in the damaged area. Suzuki Motor (small cars) dropped by 5% as VW refused to sell its 20% stake. JR Central lost 5% after saying it would bear the cost of building stations on the coming linear motor Shinkansen line instead of delegating construction to heavily indebted local governments. On the plus side, TDK surged 13% after Western Digital, a US leading HDD vendor, revealed it would start to buy HDD heads from the TDK group. LCD-related firms were sought after by bargain hunters: Sharp jumped by 11%, Nitto Denko 5% and Asahi Glass 4%. Sumitomo Chemical rose 3% after it unveiled new fluorescent materials which will make large OLED TVs much cheaper.
After hitting fresh year lows for two straight days in a row, the Topix ended a holiday-shortened week down 0.9% in JPY and 0.8% in EUR. Fears over potential sovereign debt downgrades in France and then possibly the US following the bipartisan committee’s failure to agree on budget deficit cuts weighed on sentiment all week. The TSE, which is to merge with Osaka extended daily trading by 30 minutes but volumes remained sluggish at an average of JPY 887bn, the second lowest levels to date. The JPY/USD and JPY/EUR forex rates were little changed with official intervention away from the limelight. Shipping and steel sectors were sold off most as emerging markets seemed to be losing steam. Steel makers Nippon and Sumitomo plunged by more than 6%. Non-life insurers Tokio Marine and MS&AD were also hit hard, both down 5%, as the Thai floods have caused at least JPY120bn damage to aggregate operating profits at firms with affiliates in the damaged area. Suzuki Motor (small cars) dropped by 5% as VW refused to sell its 20% stake. JR Central lost 5% after saying it would bear the cost of building stations on the coming linear motor Shinkansen line instead of delegating construction to heavily indebted local governments. On the plus side, TDK surged 13% after Western Digital, a US leading HDD vendor, revealed it would start to buy HDD heads from the TDK group. LCD-related firms were sought after by bargain hunters: Sharp jumped by 11%, Nitto Denko 5% and Asahi Glass 4%. Sumitomo Chemical rose 3% after it unveiled new fluorescent materials which will make large OLED TVs much cheaper.
ASIA
Thursday’s rebound, when US markets were closed, petered out quickly. Several large State funds intervened, particularly in South Korea and Taiwan. Investors are trying to gauge the extent of China’s changing sentiment over monetary policy.
Although several measures that are a step in the right direction were unveiled this week, they are still rather limited. For example, minimum capital requirements for some regional banks fell from 16.5% to 16% but as they already enjoyed a preferential rate compared to the 22% imposed on national banks, it is difficult to say whether the move will be generalised. Another move was to reduce stamp duty on first-time property buys in Chongqing, the city which has taken the lead in the fight against property speculation. It is difficult to say whether these measures reflect the government’s determination to keep a tight grip or foreshadow more significant moves. But China is historically cheap on a 2012 PE of 8.5.
Meanwhile, recent data confirm decelerating growth in the region: Taiwan’s industrial production was only up 1.4% compared to last year and HSBC’s PMI reading, admittedly not very trustworthy in recent months, came in at a mere 48 points. Inflation is, however, still higher than expected in Singapore and Hong Kong; food prices are not falling enough and there have been further wage increases in the second half. Companies are dipping into commodity reserves which
they bought at the top in Q2 and are still trying to increase prices to preserve margins. This scissor effect is a headache for central banks.
HTC, Taiwan’s N° 1, is the latest casualty from the smartphone war. Fourth quarter guidance has been brutally slashed and revenue is now expected to be flat compared to Q4 2010 although the company was talking about a 20-30% increase only two months ago. Unit sales are now seen up 13% instead of 35%. Clearly this is due to Samsung and Apple surging ahead but it could also indicate that European and US penetration is saturated and emerging country demand insufficient to make up for it.
Markets were subdued on Friday morning due to the looming deadline on the US deficit and comments from Germany’s foreign affairs ministry which sees further orderly defaults in Europe. Orderly perhaps but defaults all the same. This left no place for positive sentiment and matters have not been helped by Wang Qishan, the normally optimistic Chinese politburo member in charge of financial matters, who is forecasting a long term global recession.
There was one important piece of good news, however. Emirates’ USD 18bn order for Boeing planes hit the headlines and caused an intense media buzz. And yet last week’s USD 22bn order for 230 planes from Indonesia’s Lion Air, Asia’s biggest low-cost player, was actually double that as it includes an option to buy a further 150 planes for USD 14bn. It is the sort of investment programme that highlights the strength of the domestic economy and the robust growth outlook in South-East Asia for the next 10 years.
Thursday’s rebound, when US markets were closed, petered out quickly. Several large State funds intervened, particularly in South Korea and Taiwan. Investors are trying to gauge the extent of China’s changing sentiment over monetary policy.
Although several measures that are a step in the right direction were unveiled this week, they are still rather limited. For example, minimum capital requirements for some regional banks fell from 16.5% to 16% but as they already enjoyed a preferential rate compared to the 22% imposed on national banks, it is difficult to say whether the move will be generalised. Another move was to reduce stamp duty on first-time property buys in Chongqing, the city which has taken the lead in the fight against property speculation. It is difficult to say whether these measures reflect the government’s determination to keep a tight grip or foreshadow more significant moves. But China is historically cheap on a 2012 PE of 8.5.
Meanwhile, recent data confirm decelerating growth in the region: Taiwan’s industrial production was only up 1.4% compared to last year and HSBC’s PMI reading, admittedly not very trustworthy in recent months, came in at a mere 48 points. Inflation is, however, still higher than expected in Singapore and Hong Kong; food prices are not falling enough and there have been further wage increases in the second half. Companies are dipping into commodity reserves which
they bought at the top in Q2 and are still trying to increase prices to preserve margins. This scissor effect is a headache for central banks.
HTC, Taiwan’s N° 1, is the latest casualty from the smartphone war. Fourth quarter guidance has been brutally slashed and revenue is now expected to be flat compared to Q4 2010 although the company was talking about a 20-30% increase only two months ago. Unit sales are now seen up 13% instead of 35%. Clearly this is due to Samsung and Apple surging ahead but it could also indicate that European and US penetration is saturated and emerging country demand insufficient to make up for it.
Markets were subdued on Friday morning due to the looming deadline on the US deficit and comments from Germany’s foreign affairs ministry which sees further orderly defaults in Europe. Orderly perhaps but defaults all the same. This left no place for positive sentiment and matters have not been helped by Wang Qishan, the normally optimistic Chinese politburo member in charge of financial matters, who is forecasting a long term global recession.
There was one important piece of good news, however. Emirates’ USD 18bn order for Boeing planes hit the headlines and caused an intense media buzz. And yet last week’s USD 22bn order for 230 planes from Indonesia’s Lion Air, Asia’s biggest low-cost player, was actually double that as it includes an option to buy a further 150 planes for USD 14bn. It is the sort of investment programme that highlights the strength of the domestic economy and the robust growth outlook in South-East Asia for the next 10 years.
OTHER EMERGING MARKETS
The headline this week was the Rupee’s 13% fall against the USD over the last 3 months. This was due to:
A current account deficit of around 3% of GDP which is no longer entirely financed by non-domestic inflows as a result of tighter global liquidity. These inflows represented USD 24bn in 2010 but have only amounted to USD 44m year to date. On the other hand, BP’s purchase of part of a Reliance Industries’ gas field has kept direct foreign investment at USD 19bn.
The oil bill which represents 30-40% of imports. High crude prices weighed on November’s trade deficit (USD 8.9bn).
To rein in Rupee depreciation, the Reserve Bank of India has increased interest rates on non-resident deposits and foreign loans to infrastructure projects and micro finance organisations.
Note, too, that the government is to open up the mass retail sector to foreign investors. Foreigners will be able to own 100% of single-brand retailers and 51% of multi-brand outlets. That should draw in foreign capital and help finance current account deficits (thereby sending the Rupee higher) while reducing inflation by getting food prices down.
In Brazil, the market fell 8.7% due to sovereign debt concerns in Europe. BRL lost 6.65%. In the local market. Among macro highlights was a slowdown in bank loan growth to 18.4% in October. Non-performing loans rose slightly to 3.6% in October from 3.4% a year ago. NPLs (loans overdue more than 90 days) among households rose to 7.1% in October from 6% one year ago. On a monthly basis, inflation rebounded in the first 15 days of November (driven by services), but declined to 6.69% from 7.12% on a yearly basis due to the base effect. The market is expecting earlier interest rate cuts from the Central Bank next week, even if inflation increased this month. On a lighter note, consumer confidence in Brazil grew 0.5%, after a 2 month drop, and job creation is resilient. The economy also expanded by 0.02% compared to last month’s drop of 0.53%.
The headline this week was the Rupee’s 13% fall against the USD over the last 3 months. This was due to:
A current account deficit of around 3% of GDP which is no longer entirely financed by non-domestic inflows as a result of tighter global liquidity. These inflows represented USD 24bn in 2010 but have only amounted to USD 44m year to date. On the other hand, BP’s purchase of part of a Reliance Industries’ gas field has kept direct foreign investment at USD 19bn.
The oil bill which represents 30-40% of imports. High crude prices weighed on November’s trade deficit (USD 8.9bn).
To rein in Rupee depreciation, the Reserve Bank of India has increased interest rates on non-resident deposits and foreign loans to infrastructure projects and micro finance organisations.
Note, too, that the government is to open up the mass retail sector to foreign investors. Foreigners will be able to own 100% of single-brand retailers and 51% of multi-brand outlets. That should draw in foreign capital and help finance current account deficits (thereby sending the Rupee higher) while reducing inflation by getting food prices down.
In Brazil, the market fell 8.7% due to sovereign debt concerns in Europe. BRL lost 6.65%. In the local market. Among macro highlights was a slowdown in bank loan growth to 18.4% in October. Non-performing loans rose slightly to 3.6% in October from 3.4% a year ago. NPLs (loans overdue more than 90 days) among households rose to 7.1% in October from 6% one year ago. On a monthly basis, inflation rebounded in the first 15 days of November (driven by services), but declined to 6.69% from 7.12% on a yearly basis due to the base effect. The market is expecting earlier interest rate cuts from the Central Bank next week, even if inflation increased this month. On a lighter note, consumer confidence in Brazil grew 0.5%, after a 2 month drop, and job creation is resilient. The economy also expanded by 0.02% compared to last month’s drop of 0.53%.
CONVERTIBLES
There was lots of macroeconomic news this week to keep investor worries high: the US budget supercommittee failed to reach an agreement which will automatically entail cuts of USD 1,200bn between 2013 and 2021; Angela Merkel cannot reasonably act as if she is not concerned by turbulence elsewhere in Europe. And yet the European mini summit in Strasbourg once again demonstrated that Berlin has no intention of reducing its opposition to the ECB stepping in to help out ailing countries. In Europe, the market applauded Angola’s decision to invest in Portugal. Elsewhere, companies like Frontline and Thomas Cook struggled to secure financing and helped push the Xover to close to 850bp by the end of the week. Trading was light in the US due to Thanksgiving. Gilead’s USD 11bn acquisition of Pharmasset Inc at first met with hostile investor reactions due to the 90% premium paid. Subsequently, however, the move was seen as a strategically sound decision and the stock clawed back its losses within 2 days. Morgan Stanley Asia has released a report on China’s property market saying that the recent stress in the sector is overdone. Property developers, it claims, have the financial means to meet short term liabilities, pending any quantitative easing from the government in 2012. The relevant property stocks gained 15% over the week even if credit spreads remained wide.
COMMODITIES
The European sovereign debt crisis is still raging and making a recession in the zone more and more likely. At the same time, China’s PMI data faltered and dipped below 50. Hardly surprising in the circumstances that the appetite for risk assets has collapsed. Equity markets fell sharply over the week and the commodity sector was also hit.
Even so, Brent crude is still trading between USD 105-115. Libyan production is now at 750,000b/d but mounting geopolitical risk, whether in Egypt or in the Israel-Syria-Iran triangle, is enough to keep oil prices at current levels over the short term, not to mention further falls in inventories. In the OECD, these have been falling for 7 quarters and are now below seasonal averages. In the medium term, Saudi Arabia’s decision to suspend investments aimed at taking capacity to 15 million b/d by 2020 – compared to 12 million b/d currently and production of 9.7 million b/d- reflects its determination not to create overcapacity. This is designed to keep prices high at a time when US shale oil production (0.7 million b/d) is gaining traction. Significantly, private equity firm KKR has just paid USD 7.2bn to buy the largest unlisted US shale oil producer.
The famous but inefficient US supercommittee has failed to agree on USD 1,200 spending cuts over the next 10 years.
Clearly, cutting costs is not a priority just ahead of an election year. This makes it very likely that the debt ceiling will once again be raised in coming months. This would give central banks in emerging countries even more reasons to diversify their foreign exchange reserves and continue to buy gold. Last week, we mentioned considerable buying in the third quarter (148 tonnes) in World Gold Council statistics and the trend continues: Russia has bought a further 19.5 tonnes
while Kazakhstan, Colombia, Belarus and Mexico have bought a combined 6.8 tonnes. Central banks are not alone:
investors and individuals are joining in as ETF gold assets (stocks of physical gold) have now reached a record 2,350 tonnes.
The European sovereign debt crisis is still raging and making a recession in the zone more and more likely. At the same time, China’s PMI data faltered and dipped below 50. Hardly surprising in the circumstances that the appetite for risk assets has collapsed. Equity markets fell sharply over the week and the commodity sector was also hit.
Even so, Brent crude is still trading between USD 105-115. Libyan production is now at 750,000b/d but mounting geopolitical risk, whether in Egypt or in the Israel-Syria-Iran triangle, is enough to keep oil prices at current levels over the short term, not to mention further falls in inventories. In the OECD, these have been falling for 7 quarters and are now below seasonal averages. In the medium term, Saudi Arabia’s decision to suspend investments aimed at taking capacity to 15 million b/d by 2020 – compared to 12 million b/d currently and production of 9.7 million b/d- reflects its determination not to create overcapacity. This is designed to keep prices high at a time when US shale oil production (0.7 million b/d) is gaining traction. Significantly, private equity firm KKR has just paid USD 7.2bn to buy the largest unlisted US shale oil producer.
The famous but inefficient US supercommittee has failed to agree on USD 1,200 spending cuts over the next 10 years.
Clearly, cutting costs is not a priority just ahead of an election year. This makes it very likely that the debt ceiling will once again be raised in coming months. This would give central banks in emerging countries even more reasons to diversify their foreign exchange reserves and continue to buy gold. Last week, we mentioned considerable buying in the third quarter (148 tonnes) in World Gold Council statistics and the trend continues: Russia has bought a further 19.5 tonnes
while Kazakhstan, Colombia, Belarus and Mexico have bought a combined 6.8 tonnes. Central banks are not alone:
investors and individuals are joining in as ETF gold assets (stocks of physical gold) have now reached a record 2,350 tonnes.
ASSET ALLOCATION
Tension on European government bond markets and banks continued to dominate global market sentiment. This was accompanied by ever-mounting concerns over the outlook for European growth and corporate earnings. Between November 17 and 24 (November 23 in the US due to Thanksgiving), leading indices performed as follows in local currency:
Standard & Poor’s 500 -4.5%
Euro Stoxx 50 -6.8%
TOPIX -3%
MSCI Emerging markets -5.8% (in EUR)
Tension on European government bond markets and banks continued to dominate global market sentiment. This was accompanied by ever-mounting concerns over the outlook for European growth and corporate earnings. Between November 17 and 24 (November 23 in the US due to Thanksgiving), leading indices performed as follows in local currency:
Standard & Poor’s 500 -4.5%
Euro Stoxx 50 -6.8%
TOPIX -3%
MSCI Emerging markets -5.8% (in EUR)
European bond markets remained very turbulent. In a new development, Germany had difficulty selling a 10 -year bond issue and rates rose to levels seen in October and August (around 2.2% compared to 1.65% in September). Yields on US treasuries moved the other way, losing a few basis points to 1.93%. Yields in Italy stayed around recent highs of 7.15%.
The EUR/USD fell to October levels of below 1.33. The JPY was largely unchanged (77 vs. the USD). China’s RMB edged down to 6.38 vs. the USD from 6.35. Financial markets were still in thrall this week to sovereign debt tensions. By reaffirming the ECB’s independence, the mini summit between France, Germany and Italy failed to address investor worries. Markets are now waiting to see what happens at the December 9 European summit when reinforced fiscal union
is expected to top the agenda. In the circumstances, we have left geographical allocations unchanged. We did, however, take advantage of recent USD appreciation to sell dollars around the 1.33 level vs. the EUR. In bonds, we have taken profits on our sales of Bund calls.
Edmond de Rothschild Europe Flexible: exposure is at 56%, still within our 40-60% exposure range. Stable volatility of around 40% on the European index has led us to focus on using futures as hedging.
The EUR/USD fell to October levels of below 1.33. The JPY was largely unchanged (77 vs. the USD). China’s RMB edged down to 6.38 vs. the USD from 6.35. Financial markets were still in thrall this week to sovereign debt tensions. By reaffirming the ECB’s independence, the mini summit between France, Germany and Italy failed to address investor worries. Markets are now waiting to see what happens at the December 9 European summit when reinforced fiscal union
is expected to top the agenda. In the circumstances, we have left geographical allocations unchanged. We did, however, take advantage of recent USD appreciation to sell dollars around the 1.33 level vs. the EUR. In bonds, we have taken profits on our sales of Bund calls.
Edmond de Rothschild Europe Flexible: exposure is at 56%, still within our 40-60% exposure range. Stable volatility of around 40% on the European index has led us to focus on using futures as hedging.
Source: ETFWorld – La Compagnie Financière EDMOND DE ROTHSCHILD Banque
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