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Back and forth in bond and gold markets

Option expiries often mark turning points. Options market maker tend to influence stock markets less afterwards because the number option contracts to be hedged lessen. The market can breathe more freely. As a result, volatility often increases, especially if there is an external trigger. After the option expiry a week ago, the new, more transmissible Covid-19 virus variant from South Africa is one such trigger. It has significantly increased uncertainty and weighed on oil and cyclical equity market segments in particular, while safe havens such as gold and US government bonds were among the…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management December

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

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Options markets increasingly influence equity market behaviour

Volatility in the bond market remains high in the face of high US inflation. The market is increasingly pricing in rate hikes and market participants are intensely debating whether high inflation is temporary or permanent. Meanwhile, many equity markets are marking one all-time high after another, supported by declining volatility that is pushing rule-based strategies more into equities. Another pillar of the equity rally is private investors, who are now again betting more heavily on rising share prices by means of options. The volume of traded options on individual US stocks recently…

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Strong reporting season supported equity markets

A weak September has been followed by a strong October. Investor sentiment has improved significantly thanks to new all-time highs in the S&P 500 and an encouraging Q3 reporting season. We are positioning ourselves with a moderate overweight in equities, as we still see envisage potential at least until the end of the year.

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Systematic strategies have recently pushed equities higher

Investor sentiment has recently risen significantly thanks to new all-time highs in the S&P 500 and an encouraging Q3 reporting season. In the weekly AAII survey, bulls dominate bears by more than 10 percentage points for the second week in a row. At the same time, investors also appear to have unwound put options on the S&P 500, while systematic strategies have increased their equity exposure due to the fall in volatility and positive momentum. Consequently, equity markets have recently become a bit more vulnerable again. However, we still do not expect a major correction this year, as equity…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management November

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

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Short-term bonds - more (value) than liquidity substitute

The negative interest rate environment will probably accompany us for around a decade in total. Current market expectations show that positive Euro money market interest rates are not to be expected before end of 2024. Even the current discussion as to whether the rise in the inflation rate is only temporary or whether a sustained higher price level increase will materialise has not changed the interest rate outlook so far. Following the change in strategy by the European Central Bank (ECB), it will in future tolerate a temporary overshooting of inflation …

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Beware of government bonds: losses ahead in 2021 and 2022

It didn't take long for investors to once again succumb to "FOMO" – the fear of missing out. Last week Thursday, the S&P 500 had its best day since March, with 479 of 500 stocks up. Issues such as high energy costs and tapering concerns are not yet off the table, but investment pressure prevails. Beyond that there are also good reasons to remain (cautiously) optimistic. The Q3 reporting season continues the picture of the last few quarters: so far 83% of the companies in the S&P 500 have beaten earnings expectations - despite supply bottlenecks, rising input costs and skilled labour shortages.…

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Berenberg expands debt fund portfolio with two new multi-investor funds

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Berenberg launches first internationally investing micro cap fund with new benchmark

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Chance of a limited year-end rally

Global equity markets confirmed the typically poor autumn seasonality in September. However, we believe that there is the potential for a limited year-end rally and a renewed strength in cyclical stocks as 2022 should again provide positive surprises in economic terms, with the possible end of supply chain problems. The reflation trade is, therefore, not over yet.

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The S&P 500 fell finally by more than 5%

Investor sentiment has deteriorated further. Only 28% of US private investors in the weekly AAII survey expect the US stock market to rise in the next six months. China, high energy prices and tapering concerns weigh. The S&P 500 has seen its first correction beyond 5% in 227 trading days. We see this as a healthy countermovement after the strong rally over the last few months, but still believe a correction in excess of 10% is unlikely. There is still a lot of money parked on the sidelines, and equities remain the only alternative. The positioning of hedge funds and the options markets also…

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Liquid alternatives are a useful addition in the low interest rate environment

Bond yields have been falling for decades. As a result, c20% of bonds outstanding today are negative yielding, which poses two major challenges for investors. First, negative-yielding bonds result in a guaranteed loss for "buy-and-hold" investors, which – consequently – does not compensate for the risk of rising yields, at the very least, which could result in significant short-term losses. Second, the traditional hedging effect of bonds in equity market corrections is limited. The synchronisation (correlation) between equities and bonds has increased and the limited…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management October

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

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Volatility tends to rise in the run-up to Fed meetings

The last two weeks have been marked by increased volatility in the stock market, as expected and in line with the recent higher volatility going into the big option expiry week. Options are often rolled these days, leading market makers to unwind or adjust their hedges in turn. However, volatility is likely to remain elevated at least until the Fed meeting this Wednesday, for which some market participants are already expecting a concrete announcement of the schedule for the curbing of bond purchase programs. However, the recent somewhat disappointing US labour market report as well as mixed…

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Horizon Q4 2021

The powerful recovery continues despite temporary setbacks. The prevailing scepticism about growth in the third quarter seems exaggerated.

 

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From all-time high to all-time high

Many equity regions continued to edge upwards in August thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year – 12 of them in August.

 

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Berenberg Green Energy Junior Debt Fund is financing a 172 MWp solar park portfolio for GoldenPeaks Capital in Poland



Despite S&P all-time highs, the VIX stubbornly holds above the 15 mark

Many equity regions have continued to edge upwards recently, thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year. Laggards such as US small caps and Japanese equities outperformed, supported by short covering and renewed economic optimism. Bond yields recently moved sideways, despite continued high inflation figures. The market is waiting for new indications from central banks regarding the curbing of bond purchase programmes. These are likely to be given at the central bank meetings scheduled for September.…

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Stronger synchronisation of equities and government bonds is also likely to shape the coming years

For a long period, government bonds with a long duration offered the almost perfect hedge against price losses in risk assets. They generated positive returns and, as safe havens, regularly compensated for part of the losses during stock market corrections. This correlation property between government bonds and equities was crucial to the success of static multi-asset approaches. Today, investors struggle not only with the low yield but often with negative expected returns from government

bonds. Also, the relationship between government bond and equity performance, which was predominantly…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management September

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

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Berenberg Green Energy Junior Debt Fund and Elgin Energy enter agreement to finance late-stage development of Elgin’s 1.36 GWp solar portfolio


European equities historically favourably valued relative to US equities

Things got a bit bumpier in global markets over the last few days. Growth concerns and economic disappointments due to the rapid spread of the delta variant, more hawkish tones from the US central bank (tapering discussion) and regulatory tightening in China weighed on investor sentiment. In addition, the monthly option expiration weighed on investor sentiment last week. However, historically high equity fund inflows, increasing share buybacks, corporate takeovers and a strong Q2 reporting season continue to support and investors seem willing to continue buying setbacks. The S&P 500 has not…

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Berenberg Green Energy Junior Debt Funds to finance further wind farm for Energiequelle in Finland