Opinion

The ISM Manufacturing Index is not only an important indicator of future growth, but is also highly correlated with market returns. What many investors overlook: it’s not just correlated with equity returns, but also bonds.

By using indicators that say something about the direction of the ISM Manufacturing Index to define different ISM scenarios, you can derive implied returns for each asset class.

In-house valuation teams, with experts for every asset class, will become a standard feature among Alternative Investment Fund Managers, known as AIFMs, write Universal Investment’s Gerard van Vliet and Krzystof Czerner in today’s contribution as knowledge experts to Investment Officer Luxembourg. “Fair value calculations are not only necessary to pass regulatory audits, but also to provide a value-added to investors and their relationship with the AIFM.”

European financials are in the spotlight again. And once again, it is not because of anything good. The CDS spread on Credit Suisse has spurted up over the past few days. Is this just the tip of the iceberg? Many “investors” and “gurus” are eager to point out possible systemic risk. At least as far as I can see, there is none of that right now.

UK financial markets are in “turmoil”. This somewhat CNBC-esque opening, however, covers it well. And it has resulted in a chart that usually belongs to an emerging economy on the verge of collapse. The British pound is falling despite rapidly rising interest rates.

After consistently recording fat pluses over the past decade, the euro area’s trade balance has sunk deep into the red. For years, international trade contributed substantially to economic growth in the euro area. But: “Das war einmal”.

A historic surge in expensive energy imports now that gas supplies from Russia have been completely cut off results in a heavily negative trade balance. As a result, trade is now dragging down growth and pushing up the already sky-high risk of recession further.

This will probably be the worst but also the best year for bonds ever. Rising interest rates and credit spreads are causing hefty price losses. Inflation is a bond investor’s worst enemy and it is skyrocketing. The fact that interest rates and credit spreads are rising fast is good for bond investors in the long run. Panic and volatility always create opportunities.

Activity in the US housing market is rapidly declining. New home sales fell more than 12 per cent in July, the biggest drop since February last year. It was also the sixth decline in seven months. Compared to the peak, 51 per cent fewer new homes were sold.

Economic insecurities on a broad scale are increasingly impacting the decision making of institutional investors. With continuously high volatilities in equities and, as an effect of rising interest rates, even in the bond markets, they look at illiquid assets, or alternative investments that can offer solid cash flows and long-term returns.

In retrospect, we can say that central banks used the annual Jackson Hole symposium to revive their credibility as inflation fighters. This also applies to the ECB.

After yet another higher-than-expected inflation rate - we are now at 9.1 percent - and core inflation at a new record of 4.3 per cent, the ECB Governing Council on Thursday has adopted a record interest rate hike of 75 basis points.

With China using interest rates again to defuse the property crisis, and the Federal Reserve making clear in Jackson Hole that it will continue to tighten, the divergence in central bank policy between the two largest economies is increasing. This is not good news for the yuan, emerging market currencies and equities.