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Bumpy Summer

The summer is however likely to be bumpy - especially in terms of investment styles. In contrast, high central bank liquidity, fiscal stimulus, high demand potential thanks to high savings rates, share buybacks, significant share inflows and the reopening momentum speak in favour of equities. Without an external trigger, we do not expect a stronger correction.

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Good sign - investors seem to be hedging via options

While economic data in the US has not been able to surprise positively on average, unlike in other regions, the positive earnings revisions continued globally - particularly in commodity-heavy regions such as Latin America and Eastern Europe. For Latin America, earnings growth of more than 200% is now even expected for this year. Accordingly, emerging market equities outside Asia have also outperformed recently. In our view, the market is likely to remain in a “wait-and-see” mode over the next few months until it becomes clear how the Fed will act and what Joe Biden can actually implement of…

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Megatrends in our portfolios – key component of structural growth

We currently see three overarching global megatrends in particular: techceleration, demographic and societal change, and the Green Revolution. They divide into a number of structural growth drivers, which we will outline by giving you concrete stock examples.

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The Berenberg Capital Markets Outlook │Wealth and Asset Management June

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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High style volatility: constant ups and downs between value and growth

Markets remain nervous and equity style volatility stays high. There are no clear trends. This is also because the Fed and the markets are unlikely to know better, until late summer, how temporary the recent sharp rise in inflation will really be. Gold and European equities were among the recent outperformers. They benefited from significant inflows. Gold also surpassed its 200-day moving average and was supported by falling real interest rates, a weak US dollar and high volatility in cryptocurrencies. European equities benefited from positive earnings revisions as well as improved investor…

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Berenberg has been approved by London Stock Exchange as a Nominated Adviser for AIM

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Investors have used even small setbacks as buying opportunities

While little has happened with shares at an index level, there has been a lot of movement below the surface. While growth stocks recovered strongly in April, highly valued IT stocks have recently fallen sharply. Strong economic data, inflation concerns and now increasing discussions about central bank tapering have revived the reflation trade. Energy companies and basic materials were among the relative winners. Equity regions that benefited were Latin America, Eastern Europe and the UK. But defensive sectors such as telecoms and consumer staples also gained. In our view, style volatility is…

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Berenberg Green Energy Junior Debt Fund is financing a 50 MWp solar park for Amarenco in Spain


Light and shadow

April lived up to its reputation as a seasonally strong month for equity markets. The good performance was supported by the progress in Covid-19 vaccinations, the expansive fiscal policy, good economic data and positively surprising corporate profits. However, the summer brings both light and shade. We have therefore recently reduced our equity exposure to a slight overweight and continue to focus on more cyclical segments, such as commodities, alongside quality companies with sustainable growth.

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Passive investments change market structure and market behaviour

The importance of passive investments continues to grow. They enable investors to invest quickly, cost-effectively, and supposedly without disadvantage in different asset classes, regions, or segments, even if underlying securities are not very liquid.

However, their growing importance is leaving its mark on the behaviour of the overall market and individual securities. Passive investments are one of the drivers of the continuously changing market structure. With a focus on equities, we highlight the key implications of passive investing that investors need to be aware of. However, many…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management May

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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Berenberg Green Energy Junior Debt Funds to finance a 30 MW wind farm for project developer Energiequelle in Finland

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Stock market does not usually run away in May and June

In line with typical April seasonality, risk assets gained over the last few weeks while the US dollar depreciated. Continued encouraging economic data and a positive start to the Q1 reporting season helped. However, there are now increasing warning signs that suggest limited upside potential for equities in the coming weeks: tax debates, optimistic investor sentiment, insider selling, ambitious valuations, deteriorating seasonality and a muted equity reaction to positive surprises. We expect more volatile markets into the summer and are reducing our equity exposure accordingly from a moderate…

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UK: rising confidence & surging retail ahead of summer spending spree

Spring has sprung for the UK economy: Led by a rapid recovery in domestic demand, the UK is building serious recovery momentum heading into the summer. Household confidence continued to rise in April, underpinned by rapid vaccine progress and easing virus restrictions, while monthly retail sales surged above their pre-pandemic level in March.

 

Huge excess savings, record household net wealth and stable employment income set the stage for a robust recovery in household spending

 

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European PMIs herald solid rebound

Supported by an aggressive monetary stimulus, an adequate fiscal response and strong global demand, Europe is on track for a solid rebound from the Covid-19 recession. Although the current wave of the pandemic forced parts of the Eurozone to extend or tighten their lockdowns in April, even the badly battered services sector returned to modest growth in the Eurozone in April judging by the results of the monthly survey of purchasing managers.

 

Eurozone manufacturing continues to go from strength to strength. It is held back in some sectors only by a shortage of critical imports as the surge…

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ECB flash: no news is good news

The Eurozone remains on track for a solid rebound from the Covid-19 recession from May onwards, supported by an aggressive monetary policy and an adequate fiscal stimulus. The outlook has not changed materially since early March. Robust foreign demand seems to be roughly offsetting the temporary drag from a delayed easing of restrictions as parts of the Eurozone grapple with a new wave of the pandemic. The European Central Bank (ECB) thus made no relevant changes to its monetary policy statement today, leaving its very accommodative policy stance unchanged and providing no additional guidance…

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Sentiment Data in FX Strategies

2020 has seen an increased decoupling between financial markets and economic fundamentals, with countries associated monetary and fiscal policy reactions to the outbreak of Covid-19 being central to this.

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A brief history of FX

The world has flattened, and many currency managers have struggled to achieve satisfying results. Why is this the case?

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UK: inflation jumps on oil price effect and building recovery

Inflation normalising

After the COVID-19 shock, a VAT cut in the hospitality sector and an ultra-low oil price temporarily pushed inflation towards zero last year, the latest data show a fading of one-off factors and a broadening recovery in inflation commensurate with the emerging economic upswing.

• The yoy rate of headline inflation (CPI) rose to 0.7% in March from 0.4% in February – slightly below our and the consensus projection of 0.8%. Core inflation increased to 1.1% from 0.9% - Chart 1.

• After several months of declines, goods prices moved sideways in March (up from a 0.5% yoy…

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ECB preview: a time to prepare, not act

The European Central Bank (ECB) can take it easy this Thursday. The economy and inflation are roughly on track, financing conditions are favourable and markets are calm. The ECB Council need not take any policy-relevant decision or change its guidance in any way. Although the ECB may tweak the precise wording of its statement here and there, we do not expect the ECB to send any a new signal. Instead, the council can take its time to discuss the more strategic decisions it will need to take lateron.

 

Real economy

The ECB’s March staff projections for Eurozone GDP growth of 4.0% for 2021 and…

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Germany: Laschet versus Baerbock - what is at stake? (copy 1)

The parties have made their choice. “Continuity” candidate Armin Laschet will run for the CDU/CSU to succeed Angela Merkel as German chancellor after the 26 September election. The Greens already nominated Annalena Baerbock as their candidate yesterday without any fuss. The noisy conflict between Laschet (CDU) and his challenger Markus Söder (CSU) has drawn attention away from the key question: will German policies shift significantly after 16 years of Merkel at the helm – or will the changes remain gradual?

 

In many respects, Germany works largely by consensus. Big shifts like the 2003/2004…

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UK: stable labour market as economy emerges from lockdown

Still holding up

After the sharp drop in employment, hours and wage growth during the first wave of the pandemic in Spring 2020, the latest data continue to show that the labour UK market remained mostly stable through the now fading second (winter) wave of the pandemic. As part of a broader economic trend, the labour market estimates show that households and businesses are adapting better to pandemic-related restrictions the longer they go on.

 

The unemployment rate edged lower to 4.9% in February from 5.0% in March while the employment rate moved sideways (60.3%). As the key measure of…

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High noon in Germany: Söder, the Greens and the court

Söder against Baerbock in September? Germany will be in the news in the next two days and weeks. In Angela Merkel’s CDU/CSU, the fight about a joint candidate to succeed her as chancellor after the 26 September election seems to have tilted a bit in favour of Markus Söder. The dispute could be resolved today or tomorrow. Separately, the Greens will announce their own candidate for the chancellorship at 10h BST today. The odds seem to favour Annalena Baerbock. And before the end of April, Germany’s Constitutional Court is expected to rule whether or not Germany can ratify the law that would…

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COVID-19: mixed news with some positive trends

RECORDED INFECTIONS (see chart 1 below and pages 2-3 of the slide pack)

• Eurozone: After a temporary decline to 27.4 recorded daily infections per 100,000 people on 9 April, the incidence number has edged up again to 30.0 on 15 April. The temporary dip seems to have reflected less intense testing and reporting in some countries over the Easter holiday season. Germany, for example, conducted 19% fewer tests in the week of 5-11 April than it had done at the peak two weeks earlier. That the share of positive tests rose further over the same period from 9.3% to 12.0% indicates that the…

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Industrial metals – at the beginning of a new super-cycle

Industrial metals are among the big winners of the COVID-19 crisis: in 2020 they gained an average of 20% and this year they have already achieved a double-digit performance (see Fig. 1). Not despite, but rather because of the virus, the fundamental outlook is very positive in the short to medium term. Although demand fell sharply in the course of the first lockdowns, many mine operators were also affected by COVID-related closures. Extreme inventory build-ups thus did not materialise. At

the same time, political decision-makers around the globe launched fiscal stimuli of unprecedented…

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