Investment Officer Luxembourg

Three things come into play when forecasting future inflation. First of all, the difference between supply and demand. At macro-economic level, an estimate is often made of the output gap, or the tightness of the labour market. In addition, the current inflation level also plays a role. Inflation is reasonably inert, well-anchored and responds slowly to changes. It takes time for a different inflation level to sink in with consumers and producers.

Global financial services provider Apex Group Ltd announced on Thursday the close of its acquisition of Sanne Group plc, a leading global provider of alternative asset and corporate services.

The 55 million euro high security, high value storage facility formerly known as the Luxembourg Freeport – now known officially as the High Security Hub (HSH) – was back in the headlines recently as auditor BDO Audit drew attention to what it termed  “significant uncertainties” about the firm’s ability to continue its business activities “on a going concern basis,” in its corporate audit report of HSH’s balance sheets, filed to the Luxembourg Business Register in mid-July.

From 2 August 2022, a European Commission regulation comes into force (Commission Delegated Regulation 2021/1253 of 12 April 2021) as part of MiFiD II that requires providers of investment advisory and discretionary portfolio management services to collect specific information on their clients sustainability preferences. 

The providers are also required to “meet such preferences”, while at the same time meeting their investment objectives and taking into account their financial situation and experience.

The US Federal Reserve announced an expected 75 basis point interest rate hike on Wednesday evening. Inflation pain will now have to be carefully weighed against the threat of an economic recession. Equity markets reacted positively to the announced policy.  

The S&P added 2.68 percent and the Dow Jones gained almost 1.4 percent. European markets extended Wednesday’s gains in early trading. The Euro Stoxx 50 index traded 0.4 percent higher shortly after the opening.

Luxembourg-based steelmaker ArcelorMittal, the world’s second-largest, on Thursday posted higher-than-expected earnings thanks to rising prices but warned that it sees risks in inflation, the ongoing war in Ukraine and the effects of the Covid-19 pandemic in China.

The company posted EBITDA earnings of 5.16 billion dollars in the second quarter, up from 5.05 billion in the period a year earlier. Analysts polled by Reuters had expected earnings of 5.09 billion.

A recent study conducted by Boston-based State Street has found evidence of “green shorting”,  a phenomenon in financial markets where investors borrow shares of companies with a weak sustainability profile and sell them in the hope they can buy them back cheaper when the price declines.

The risk of recession and persistent inflation resulted in a correction of almost all risky assets. Also high yield bonds ended the first half of the year with heavy losses. An update:

Interest rate hikes in developed markets caused most bond categories to be deeply in the red after the second quarter of this year. High-yield bonds were not spared: The ICE BofA Glb High Yield Constrained Index closed the second quarter of 2022 with a loss of 5.7 percent measured in euros after giving up 4 percent in the first quarter.

And then things moved fast. Business confidence fell to worrying levels in July, making a recession, especially in Europe, seem inevitable.

The S&P Global Flash Composite (Manufacturing + Services) PMI for Germany fell to 48.0. Well below the “magic” level of 50, seen by many as the line between economic growth and contraction - even though the actual level of negative GDP growth is considerably lower. The Manufacturing PMI also fell to 49.2.

With a recession looming in Europe, investors again are on the lookout for suitable safe havens. Ethenea’s investment strategist Andrea Siviero, who manages the firm’s 60-million-euro Hesper Fund - Global Solutions together with Federico Frischknecht, believes the Swiss franc and the Japanese yen are well placed to take up this role, as the Fund has1a position in December 2023 Euribor futures that anticipates the ECB won’t be able to raise rates next year as much as currently discounted by the market.