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2nd quarter 2014
2nd quarter review 2014
Bonds
Interest rates
ÎÒÔ
Credit
Ò
Ò
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Equities
Ò
Volatility
Ô
Hedge funds
Ò
USD
Ô
Gold
Ò
Oil
Ò
Trends over the last 3 months
The global economy did not grow as strongly as expected at the beginning of
the year, leading recently to a downward revision of estimates for 2014.
However, the U.S. economy moved back onto the growth track in the 2nd
quarter after the winter slowdown and was even showing signs of
acceleration at the start of the second half of the year. In Europe, following
the acceleration seen in 2013, growth stabilized during the spring, with the
dynamic slowing down in France. The United Kingdom, for its part, confirmed
its sharp acceleration of the previous quarters. In the emerging world, the
dynamics continued to diverge but encouraging signs of a slight reacceleration appeared in China.
Monetary policies remained highly accommodative throughout the developed
world, with even further easing measures taken by the ECB in the Euro zone.
However, the brisk growth of the British economy made the question of
when interest rate normalization would begin increasingly urgent on the
other side of the Channel, and if the expected acceleration in the United
States was confirmed, the question might also begin to arise for the Fed.
In this environment, almost all financial assets posted positive performances
in the 2nd quarter of 2014, driven by the cocktail of positive economic
growth, low inflation and stimulative monetary policies. The foreignexchange market, for its part, continued to be dependent on the
expectations of how monetary policies would change.
Economy
United States ........................................................................... 2
Clear-cut spring rebound of activity
Euro zone ................................................................................ 2
The ECB ends up using its “heavy artillery” to stimulate credit
Europe outside the Euro zone .................................................. 2
When will the Bank of England make its first interest-rate hike?
Japan....................................................................................... 3
A quarter marked by the repercussions of the VAT rate hike
A publication of the Research & Analysis
team
SYZ Asset Management SA
Tel. +41 (0)58 799 19 09
[email protected]
Authors:
Yasmina Barin
Yves Gallati
Maurice Harari
Wanda Mottu
Adrien Pichoud
Fabrizio Quirighetti
Emerging Economies................................................................ 3
Improvement in the 2nd quarter
Markets
Equities ................................................................................... 4
Rotation of styles and/or sectors
Bonds ...................................................................................... 4
The hunt for yield continues
Exchange rates ........................................................................ 4
The euro falls (a little), the pound and the emerging currencies
appreciate
Statistical data......................................................................... 5
This document is intended exclusively for professional or institutional clients and counterparties. It is therefore not intended to be distributed to, or used by, any private client, person or entity who/which is a national of, is resident in or located in any place, State,
country or other jurisdiction in which the distribution, publication, provision or use of this document would be in breach of the law or the applicable regulations. This document has been produced purely for the purpose of information and does not therefore constitute
a contractual document or an offer or a recommendation to purchase or sell any investment whatsoever or other financial product. The analysis developed in this document is based on numerous hypotheses. The use of different hypotheses might lead to significantly
different results. Any opinion expressed is valid only on the date on which it is published and may be revised at any time without prior notice. Past performance is not a guarantee of future results. All the information and opinions set out in this document have been
obtained from sources deemed reliable and trustworthy but no declaration or guarantee, whether express or implicit, is provided as to their accuracy or completeness. SYZ Asset Management refuses to accept any liability in the event of any losses or damage of any
kind resulting from the use of this document. Before making an investment, the addressee of this document is recommended to consult his/her own legal, financial and/or tax adviser. Reproduction and distribution of all or part of this document are subject to prior
permission from SYZ Asset Management SA.
2nd quarter 2014
Economy
United States
In the 2nd quarter, the U.S. economy regained the
steady growth trend that had characterized it during the
second half of 2013. After a winter soft patch marked by
the -2.9% drop in GDP, all the indicators underscored a
significant rebound of growth during the spring. The ISM
activity indices rebounded to levels synonymous with
growth of close to 2.5%, an improvement confirmed by
the new high since 2007 reached by the SMEs’
confidence index. The production capacity utilization rate
is now approaching its equilibrium level, a sign that the
situation is about to become “normal” again in
manufacturing, with a recovery of investment taking
shape.
Moreover, the improvement in the labour market also
continued, with the acceleration of the number of jobs
created in June and the fall in the jobless rate to 6.1%.
On the real-estate front, the decline in long-term interest
rates and a catching-up effect after activity was frozen in
the 1st quarter revived housing starts and sales of new
houses. In this environment, household confidence also
reached a new high since 2008, supporting consumer
spending, which was also fuelled by the increase in lowcost credit.
During the quarter, the Federal Reserve hardly changed
its monetary policy, continuing to scale down its asset
purchasing programme by USD 10 bn at each meeting,
while maintaining an accommodative policy line. In the
absence of an acceleration of wage increases and
inflation, the Fed seemed determined to maintain a stillvery stimulative monetary policy for as long as possible.
Europe
Despite somewhat disappointing growth at the beginning
of the year (GDP up by +0.2% in the 1st quarter), the
dynamic of a moderate recovery that had appeared in
2013 extended into the 2nd quarter in the Euro zone. The
German economy seemed to be stabilizing at a growth
rate of about 2%. The Spanish, Portuguese and Irish
economies were showing a real improvement in activity,
reaping the first benefits of the efforts made in recent
years. The Italian economy, which has not made the
same adjustments in terms of labour costs and
flexibility, remained in a very weak growth mode but the
arrival in power of Matteo Renzi instilled a wave of
optimism in the country which - if it is kept going by the
adoption of key reforms - could result in a revival of the
Italian economy in the medium term. Only France was
still, for the moment, clearly lagging behind the
European recovery. Mistrust and misunderstanding of
the government and the continued rise in unemployment
were weighing on household and business confidence.
7 novembre 2012
In this environment of a still-fragile recovery, particularly
in the south of the Euro zone, the availability of credit to
businesses was a crucial factor if growth was to
accelerate and strengthen. The supply of credit was still
constrained by the need for banks to clean up their
balance sheets before the ECB becomes the single
European regulator in the autumn. In addition, financing
conditions remained very unfavourable for Italian and
Spanish companies compared to their German or French
counterparts. And as, moreover, inflation remained very
low throughout the quarter (between 0.5% and 0.7%),
the ECB decided in June to react to this situation by
greatly easing its monetary policy. Not only did it once
again lower its key interest rates (taking the main Refi
rate to 0.15% and the deposit rate into negative figures
at -0.10%), but it also announced a series of measures
aimed at encouraging and facilitating distribution of
credit to businesses (provision of long-term liquidity at
low cost for banks, preparing an ABS purchasing
programme).
Europe outside the Euro zone
In the United Kingdom, the steady growth dynamic that
appeared one year ago extended into the 2nd quarter,
with still-high activity indices in manufacturing and
services, the continued rise in property prices and the
decline in the unemployment rate to its lowest level in
more than five years. The British economy was expected
to post the strongest growth rate among the major
developed economies in 2014 and the debate about
when the Bank of England’s monetary policy would begin
to return to normal had become broader with statements
made by its Governor suggesting that a first rate hike
might be made before the end of the year.
In Switzerland, the GDP statistics showed that growth
did not weaken in 2014 and should remain at around
2%. While household consumption marked time
somewhat, foreign trade and investment remained
strong. This was particularly true of the real-estate
market which, despite the measures taken by the SNB
for one year to slow down the dynamic, remained a
matter of concern for the central bank.
This document is intended exclusively for professional or institutional clients and counterparties. It is therefore not intended to be distributed to, or used by, any private client, person or entity who/which is a national of, is resident in or located in any place, State,
country or other jurisdiction in which the distribution, publication, provision or use of this document would be in breach of the law or the applicable regulations. This document has been produced purely for the purpose of information and does not therefore constitute
a contractual document or an offer or a recommendation to purchase or sell any investment whatsoever or other financial product. The analysis developed in this document is based on numerous hypotheses. The use of different hypotheses might lead to significantly
different results. Any opinion expressed is valid only on the date on which it is published and may be revised at any time without prior notice. Past performance is not a guarantee of future results. All the information and opinions set out in this document have been
obtained from sources deemed reliable and trustworthy but no declaration or guarantee, whether express or implicit, is provided as to their accuracy or completeness. SYZ Asset Management refuses to accept any liability in the event of any losses or damage of any
kind resulting from the use of this document. Before making an investment, the addressee of this document is recommended to consult his/her own legal, financial and/or tax adviser. Reproduction and distribution of all or part of this document are subject to prior
permission from SYZ Asset Management SA.
2nd quarter 2014
Japan
nd
The 2 quarter was marked by the repercussions of the
increase in the VAT rate from 5% to 8% on April 1. As
was logical, after strong 1st-quarter growth due to
brought-forward purchases (a +1.6% increase in GDP),
activity dropped abruptly
in April
(growth in
manufacturing came to a halt, retail sales dropped
sharply). The household and company confidence indices
also plummeted, while inflation as measured by the
consumer price index surged mechanically to reach its
highest level since January 1991, at 3.7%. These logical
effects were expected and the question now is whether,
once the shock of this VAT increase is over, the Japanese
economy will return in the 2nd half of the year to the
positive trend that had appeared in 2013. The first
indications allow for a degree of optimism but
confirmation will be needed in the coming months.
Emerging Economies
After a turbulent 1st quarter in the emerging economies,
the 2nd quarter was more favourable. Bonds, currencies
but also equities delivered positive performances in an
environment characterized by historically low volatility
and interest rates at very low levels in the developed
world (optimal conditions for the carry trade). In
general, the emerging countries continued to undertake
the reforms necessary (for example, in order to calm
down inflationary pressures or to reduce their deficits) to
make their economies sounder, while juggling with a
busy election schedule in many of these countries
(synonymous with uncertainty). The engine of emerging
growth (China) recently saw its latest macro-economic
indicators surprise and push up the market, but a hard
landing for the world’s second-largest economy remains
one of the major risks for the future. In addition, in an
environment of monetary policy normalization in the
United States, the overall health of the emerging
countries might very soon become precarious again for
the most fragile ones.
This document is intended exclusively for professional or institutional clients and counterparties. It is therefore not intended to be distributed to, or used by, any private client, person or entity who/which is a national of, is resident in or located in any place, State,
country or other jurisdiction in which the distribution, publication, provision or use of this document would be in breach of the law or the applicable regulations. This document has been produced purely for the purpose of information and does not therefore constitute
a contractual document or an offer or a recommendation to purchase or sell any investment whatsoever or other financial product. The analysis developed in this document is based on numerous hypotheses. The use of different hypotheses might lead to significantly
different results. Any opinion expressed is valid only on the date on which it is published and may be revised at any time without prior notice. Past performance is not a guarantee of future results. All the information and opinions set out in this document have been
obtained from sources deemed reliable and trustworthy but no declaration or guarantee, whether express or implicit, is provided as to their accuracy or completeness. SYZ Asset Management refuses to accept any liability in the event of any losses or damage of any
kind resulting from the use of this document. Before making an investment, the addressee of this document is recommended to consult his/her own legal, financial and/or tax adviser. Reproduction and distribution of all or part of this document are subject to prior
permission from SYZ Asset Management SA.
2nd quarter 2014
Markets
Equities
Exchange rates
In an uncertain political and economic environment
(crisis in Ukraine, the hope of an intervention by the
ECB...) and after having undergone a strong rotation in
favour of “value” shares at the expense of “growth”
stocks, the financial markets had to face a second major
rotation. After having outperformed most of the global
indices during the year 2013, small caps lost some of
their attraction in favour of large capitalizations. Over
the first half of the quarter, whereas the Russell 1000
(large caps) delivered a positive performance of about
1%, the Russell 2000 (small-mid caps) for its part
plummeted by about -6%. This very rare disconnect
phenomenon (one goes up, the other plunges) was not
confirmed in the second half of the quarter. Buoyed by
encouraging macro-economic statistics, U.S. stock
markets reached all-time highs during the second part of
the quarter, without any particular rotations of styles
and/or sectors.
The prospect of an easing of the ECB’s monetary policy
caused a slight weakening of the euro against the dollar
(from EUR/USD 1.38 to 1.36). Following the ECB’s
announcements on June 5, the euro even briefly came
close to 1.35, but the Federal Reserve’s still-relativelyaccommodative policy line was for the moment
preventing a significant appreciation of the U.S. dollar.
The pound sterling, for its part, was buoyed by the
prospect of a sooner-than-expected interest-rate hike by
the Bank of England: it appreciated by 2.5% against the
dollar, to GBP/USD 1.71. The Swiss franc remained
stable against the euro, appreciating very slightly (from
EUR/CHF 1.22 to 1.215). The Japanese yen remained
stable against the dollar, hovering at around USD/JPY
102. Most emerging currencies appreciated against the
dollar, benefiting from investors' attraction for yield and
from the improvement in the economic statistics of those
economies.
The MSCI World, in local currencies, rose by 3.7% over
the period under consideration. Although the European
markets finished the 2nd quarter in positive territory,
they detracted from relative performance (+2.3% for the
STOXX 600). The S&P 500 and Topix indices
distinguished themselves by ending the quarter strongly
up, at +4.7% and +5.0% respectively. The emerging
markets did not perform badly either, following close on
the heels of the US and Japan at +4.2% (MSCI EM).
Bonds
The positive trend in place since the beginning of the
year in all segments of the bond market extended into
the 2nd quarter. Risk-free interest rates continued to
ease, with the 10-year U.S. Treasury falling to 2.44%
(its lowest level for one year) and the 10-year German
government bond (Bund) returning to close to its alltime lows of 2012/beginning of 2013 (1.25%). The
spread between these rates and the rates of the riskier
issuers also narrowed to very low levels. An environment
of still-low inflation (or very low in Europe) and
accommodative monetary policies (further eased in
Europe) were still a fertile ground for fixed-income
securities and continued to drive the search for yield.
This document is intended exclusively for professional or institutional clients and counterparties. It is therefore not intended to be distributed to, or used by, any private client, person or entity who/which is a national of, is resident in or located in any place, State,
country or other jurisdiction in which the distribution, publication, provision or use of this document would be in breach of the law or the applicable regulations. This document has been produced purely for the purpose of information and does not therefore constitute
a contractual document or an offer or a recommendation to purchase or sell any investment whatsoever or other financial product. The analysis developed in this document is based on numerous hypotheses. The use of different hypotheses might lead to significantly
different results. Any opinion expressed is valid only on the date on which it is published and may be revised at any time without prior notice. Past performance is not a guarantee of future results. All the information and opinions set out in this document have been
obtained from sources deemed reliable and trustworthy but no declaration or guarantee, whether express or implicit, is provided as to their accuracy or completeness. SYZ Asset Management refuses to accept any liability in the event of any losses or damage of any
kind resulting from the use of this document. Before making an investment, the addressee of this document is recommended to consult his/her own legal, financial and/or tax adviser. Reproduction and distribution of all or part of this document are subject to prior
permission from SYZ Asset Management SA.
2nd quarter 2014
Equities
Performance
MSCI World
DJ Stoxx 600
Bonds
30/06
Q2
YTD
Total Return
1'235
+3.7%
+4.3%
EMU Broad
30/06
1.27
+2.8%
Q2
YTD
+6.1%
342
+2.3%
+4.1%
US Broad
2.19
+2.1%
+4.1%
S&P 500
1'960
+4.7%
+6.1%
UK Broad
2.84
+1.5%
+3.9%
Russell 2000
1'193
+1.7%
+2.5%
Swiss Broad
0.58
+1.4%
+3.9%
Nasdaq
4'408
+5.0%
+5.5%
EMU 3-5Y
0.63
+1.7%
+4.1%
Topix
1'263
+5.0%
-3.1%
EMU 7-10Y
1.64
+4.1%
+9.5%
MSCI EM
48'694
+4.2%
+3.3%
EMU 10Y+
2.66
+4.8%
+11.7%
BOVESPA
53'168
+5.5%
+3.2%
US 3-5Y
1.26
+0.9%
+1.4%
China 300
2'165
+0.9%
-7.1%
US 7-10Y
2.33
+2.4%
+4.9%
BSE 100
7'743
+15.4%
+22.4%
US 10Y+
3.21
+3.7%
+9.8%
MICEX
1'476
+7.8%
-1.8%
UK 3-5Y
1.72
-0.8%
-0.6%
CAC 40
4'423
+0.7%
+3.0%
UK 7-10Y
2.46
-0.0%
+1.6%
DAX 30
9'833
+2.9%
+2.9%
UK 10Y+
3.29
+1.2%
+3.8%
SMI
8'555
+1.2%
+4.3%
Swiss 3-5Y
0.09
+0.1%
+0.5%
FTSE 100
6'744
+2.2%
-0.1%
Swiss 7-10Y
0.45
+2.4%
+4.9%
FTSE MIB
21'283
-1.9%
+12.2%
Swiss 10Y+
1.22
+2.3%
+6.7%
IBEX 35
10'924
+5.6%
+10.2%
US HY
5.71
+2.9%
+5.9%
PSI 20
6'802
-10.6%
+3.7%
EM
4.61
+5.4%
+9.1%
ISEQ
4'700
-5.9%
+3.5%
12
-2.3
-2.2
VIX
FX
Perf.
World Equities Sectors
Tops
Oil & Gas
USD/EUR
Q2
+10.7%
Utilities
30/06
Q2
31/12
YTD
1.37
+0.6%
1.37
+0.4%
YTD
CHF/EUR
1.22
+0.3%
1.23
+1.0%
+12.2%
GBP/EUR
0.80
+3.2%
0.83
+3.9%
Techno
+6.0%
Oil & Gas
+11.1%
NOK/EUR
8.40
-1.8%
8.34
-0.7%
Utilities
+5.4%
Healthcare
+10.4%
CAD/EUR
1.46
+4.1%
1.46
-0.1%
Flops
Q2
Telecom
YTD
CHF/GBP
1.52
-2.8%
1.48
-2.5%
+0.7%
JPY/CHF
114.2
+2.1%
118.2
+3.5%
Financials
+2.3%
Cons Serv
+2.3%
Cons Serv
+0.9%
JPY/USD
101.3
+1.7%
105.1
+3.8%
Industrials
+2.7%
Financials
+3.1%
JPY/EUR
138.7
+2.3%
144.8
+4.4%
+0.7%
Hedge Funds
Performance
CHF/USD
0.89
-0.2%
0.89
CAD/USD
1.07
+3.6%
1.06
-0.2%
1.06
+1.8%
1.12
+5.5%
30/06
Q2
YTD
AUD/USD
HFRX Global
1247
+0.6%
+1.8%
NZD/USD
1.14
+0.9%
1.21
+6.4%
HFRX Equal W
1220
+0.4%
+1.9%
TRY/USD
2.12
+0.9%
2.15
+1.3%
HFRX Equity Hedge
1180
+0.0%
+1.3%
BRL/USD
2.20
+2.7%
2.34
+6.4%
HFRX Macro / CTA
1125
+0.3%
-0.7%
RUB/USD
34.1
+3.2%
32.9
-3.5%
HFRX Event Driven
1647
+1.6%
+4.4%
INR/USD
60.1
-0.7%
61.9
+2.8%
HFRX Relative Value
1223
+0.6%
+1.6%
CNY/USD
6.21
+0.2%
6.05
-2.4%
MXN/USD
13.0
+0.6%
13.1
+0.8%
MXN/AUD
12.3
-1.2%
11.7
-4.5%
MXN/NZD
11.4
-0.3%
10.8
-5.3%
Interest Rates
Yield/Rate
30/06
Q2 Change
31/12
BD 10Y
1.25
-32
1.94
Commodities
US 10Y
2.53
-20
3.04
Performance
UKT 10Y
2.67
-7
3.03
Energy
CHF 10Y
0.64
-31
1.09
Precious Met
JP 10Y
0.57
-6
0.74
Ind Met
FR 10Y
1.70
-39
2.57
IT 10Y
2.85
-45
30/06
Q2
YTD
349
+3.5%
+3.3%
1773
+3.4%
+9.8%
359
+7.5%
+2.5%
Agri
350
-14.5%
-0.5%
4.09
Oil-Brent
113
+5.1%
+1.3%
IR 10Y
2.35
-64
3.44
Oil-WTI
106
+4.4%
+8.1%
SP 10Y
2.67
-57
4.14
Silver
2096
+5.8%
+7.5%
EUR 3M Libor
0.21
-11
0.29
Gold Bullion
1317
+2.1%
+9.0%
USD 3M Libor
0.23
0
0.25
Palladium
844
+8.5%
+17.9%
CHF 3M Libor
0.01
-1
0.02
Platinum
1480
+4.4%
+9.1%
Copper
7041
+5.9%
-4.5%
18969
+19.6%
+37.1%
Credit Spreads
30/06
Q2 Change
31/12
US HY spread
3.20
-18
3.32
EM spread
2.10
-29
2.24
Itraxx Main
62
-15
70
Itraxx HiVol
69
-31
103
Itraxx Xover
241
-48
286
EU Banks CDS
129
-21
185
Nickel
This document is intended exclusively for professional or institutional clients and counterparties. It is therefore not intended to be distributed to, or used by, any private client, person or entity who/which is a national of, is resident in or located in any place, State,
country or other jurisdiction in which the distribution, publication, provision or use of this document would be in breach of the law or the applicable regulations. This document has been produced purely for the purpose of information and does not therefore constitute
a contractual document or an offer or a recommendation to purchase or sell any investment whatsoever or other financial product. The analysis developed in this document is based on numerous hypotheses. The use of different hypotheses might lead to significantly
different results. Any opinion expressed is valid only on the date on which it is published and may be revised at any time without prior notice. Past performance is not a guarantee of future results. All the information and opinions set out in this document have been
obtained from sources deemed reliable and trustworthy but no declaration or guarantee, whether express or implicit, is provided as to their accuracy or completeness. SYZ Asset Management refuses to accept any liability in the event of any losses or damage of any
kind resulting from the use of this document. Before making an investment, the addressee of this document is recommended to consult his/her own legal, financial and/or tax adviser. Reproduction and distribution of all or part of this document are subject to prior
permission from SYZ Asset Management SA.