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Trading results of summer 2016 and autumn expectations

The main trading event of this summer was Brexit, that pulled GBP down. I feel that political developments are important, but at the same time I try to look at the underlying factors that may have an even larger influence on the economy.

From that perspective, I do not believe there is one single possible path for the economies of the UK and Europe. Of course one of the key variables is how the future relationship between the UK and Europe will affect the real economy. Brexit will have an impact on political decision-making processes in the rest of Europe. But the UK is still part of an economic area that is heavily interdependent. The relationship does not cease to exist, it merely changes. In other words, I believe the impact of Brexit on the European economy, albeit negative, will not be disastrous. I am not prepared to downgrade the whole European economy because of Brexit.

In terms of asset allocation, I am still convinced that European equity has a potential. In fact, I believe that European equity is currently a less risky market than other developed market equity markets. This is one of our core views, and I think it holds for both the UK and the rest of Europe. Many British companies will not necessarily suffer, as they are have a global exposure.

I am watching several developments in the listed equity space. Certain sectors are of course under pressure. But, in general, I have not shifted our equity allocations away from any particular regions of Europe. I believe sector exposure is more relevant than geographical exposure at the moment. When it comes to fixed income, I believe we have to carefully check the risk factors affecting each asset class. It might make sense to look at higher-yielding paper, but the underlying risk may be too high compared with lower yielding asset classes. And yet, shifting from traditional European sovereign bonds to other areas seems a sensible approach. One asset class that does not look particularly attractive at the moment due to Brexit is, of course, UK real estate. In the end, the direction of an economy is very much about people’s and companies’ individual decisions.

Old Wall Street proverb goes “Sell a May and go away”. Partially that’s true – low volatility can make trader crazy and impatient. Global markets were otherwise subdued as trading volumes were thin amid the summer holidays. But I do not have right to rest all the summer, as investors need profits even on vacations. ))) Our result is + 59%. Not the best, but good profit, taking into account that it was summer time. Congratulations to my investors!

I have great news – this autumn seems to be very promising and I expect high returns. Even September has more events then all summer.

Investors have been repricing the odds of an increase in interest rates upwards in the run-up to Fed Chair Janet Yellen’s speech at the Jackson Hole Symposium and Fed Vice Chair Stanley Fischer’s comment that Yellen’s remarks were consistent with the possibility of two rate hikes in 2016, though the implied probability of a hike in September has eased in recent sessions.

This argument may be put to rest on Friday, as job growth in August has come in below analysts’ expectations for five consecutive years.

Incoming central bank decisions will drive global markets in September, given the potential for a rate hike from the Fed and the impact of large asset-purchasing schemes in the U.K., Japan, and the euro area, for foreign exchange and credit markets, in particular.

The ECB Governing Council meets on 8 September and it faces a make-or-break bid to save its quantitative-easing strategy in the face of self-imposed limits on what it can buy. Analysts say the ECB might extend the horizon of its asset purchase program from March to September 2017.

The next Bank of England meeting is on September 15 — analysts, surveyed by Bloomberg, only see a 6.3 percent probability of a rate cut at that meeting — and attention will focus on the implementation challenges of the monetary authority’s bond-purchase scheme after a challenging start for the program.

Similarly, fears are growing the Bank of Japan (BOJ) is exhausting its policy arsenal amid weak GDP, stubborn deflationary pressures, and a declining stock of government bonds available for purchase.The BOJ will announce the results of its comprehensive review of its monetary policy on September 21 — the same day as the Fed decision — amid rising expectations it will cut rates further into negative territory.

The G20 Summit will also take place on September 4-5, with China, the host, seeking to focus on global growth and financial-sector issues. There has been a rhetorical shift in recent months among advanced-economy policy makers in favor of looser fiscal policy, given the declining returns from monetary stimulus.

Although analysts don’t foresee a coordinated plan at the G20 level for a large fiscal stimulus plan, markets will be keenly focused on the extent to which policy makers talk up the growth-boosting efficacy of fiscal policy, in general, a development that could reshape trading investments over financial assets, particularly high-grade bonds.

And while the Organization of Petroleum Exporting Countries (OPEC) could be renamed the Organization Who Cried Production Freeze, analysts at Barclays Plc see cause to believe the threat to maintain output at current levels is more credible this time around, with officials from OPEC member countries scheduled to meet in Algeria from September 26 – 28.

“Non-OPEC countries that many analysts thought could not produce more (Russia for example), as well as some OPEC countries have continued to raise their production,” writes Kevin Norrish, managing director of commodities research. “So a freeze this time could help stem some potential further supply growth.”

September is also the start of the school year in global primary capital markets and analysts expect a busy pace of U.S. investment-grade issuance despite unusually strong supply in August. Analysts at Bank of America, for example, expect $120 billion in new high-grade bonds. The ease in which credit markets absorb the supply will serve as an indicator of M&A and share buy-back volumes in the second half of year given the bond market’s outsize role in such corporate financing activities, say analysts.

In sum: vacation’s over. Report back to your terminal immediately.

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