APS Bank p.l.c. Ordinary Shares

MeDirect Bank (Malta) plc would like to announce that we are accepting applications for anyone interested in the Initial Public Offering (IPO) by APS Bank (the “Issuer”).

The Issuer will be issuing 100,000,000 new ordinary shares (subject to an over-allotment option of an additional 10,000,000 new shares) at an issue price of €0.62 per share.

All current and new shares will be listed on the Official List of the Malta Stock Exchange.

Full details about this IPO are set out in the Prospectus 24th May 2022 which can be found here.

MeDirect will be accepting applications from anyone, who is interested. All applications must be received by not later than 17th June 2022. In the event of over-subscription, the Issuer reserves the right to close the Offer Period before this date.

If you are interested in applying, please send us a Secure Mail or contact your existing Relationship Manager.

For further information, please call us on (+356) 2557 4400 or send an email to customerservice@medirect.com.mt.


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BlackRock Commentary: Turning neutral on DM equities

Jean Boivin, Head of the BlackRock Investment Institute together with Wei Li, Global Chief Investment Strategist, Alex Brazier, Deputy Head of the BlackRock Investment Institute and Vivek Paul, Senior Portfolio Strategist all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points:

Cutting DM stocks: We cut developed market (DM) equities to neutral on a risk of the Fed talking itself into overtightening policy and China adding to a weaker global outlook.

Market backdrop: Stocks plumbed new 2022 lows on fears steep rate rises will trigger a growth slowdown. We see a brighter picture, but this may not become clear for months.

Week ahead: U.S. PCE inflation data this week are expected to show pressures are slowing. We think inflation will settle higher than pre-Covid levels.

The Federal Reserve signaled its focus is on taming inflation without flagging the big economic costs this will entail. As long as this is the case and markets believe it, we don’t see the basis for a sustained rebound in risk assets. We think the Fed will consider the costs to growth at some point, especially if inflation cools, and expect a dovish pivot later this year. China’s slowdown is a large shock that will be felt over time. We further trim risk and downgrade DM equities to neutral.

China slowdown to ripple across globe

The Fed stepped up its rhetoric last week by vowing to bring inflation down at any cost. We think reality will be more complex. First, supply-driven inflation implies the sharpest policy trade-off in decades: between choking off growth via sharply higher rates or living with supply-driven inflation. Second, this trade-off is even more stark amid a weaker global macro outlook. The hit to Chinese growth is starting to rival its 2020 shock and already surpasses the one from the global financial crisis. See the chart. We think this will reduce growth in major economies and nudge up DM inflation at a very inopportune time when higher inflation is already proving more persistent. We had already seen Europe at risk of recession, which prompted us to reduce risk a few weeks ago. As a result, we further downgrade DM equities to neutral from overweight.

A hawkish pivot

The Fed’s hawkish pivot this year has been stunning, and pronouncements on reining in inflation have become regular fare. Chair Jerome Powell just last week said the Fed would keep hiking rates until inflation is “tamed” – a comment that dismisses any trade-off or the lagged effect of monetary policy on the economy. The Fed now appears to be constraining itself to the hawkish side of policy options with such language, just as talking about the jump in inflation being “transitory” last year boxed it in when inflation proved more persistent and forced a sharp pivot. We think the Fed could be forced into another sharp pivot later this year, which we expect rather than a recession. These Fed pivots are driving market volatility, in our view.

Market expectations are now calling for the Fed funds rate to zoom up to a peak of 3.1% over the next year, more than doubling since the start of the year. For the European Central Bank, market pricing reflects four hikes this year and getting to nearly 1.4% next year, well above our estimate of neutral and for an economy at real risk of stagflation this year. The equity selloff this year makes sense from this perspective – if you believe that the market’s view of the Fed and ECB rate paths are right.

The growth reality will be more complex – both from the policy trade-off it faces amid a deteriorating macro backdrop, especially China’s slowdown and Europe facing stagflation. That’s why we expect a dovish pivot later in the year. We stick to our view of the Fed raising rates to around 2.5% by the end of this year – and then stopping to evaluate the effects. We still see the U.S. economy’s momentum as strong – we expect growth of around 2.5% this year, slightly below consensus and far from recession. Equities may have short-term, technical rebounds. Yet until the Fed starts to pivot, we don’t see a catalyst for a sustained rebound in risk assets.

The upshot?

We further reduce portfolio risk after having trimmed it to a benchmark level a few weeks ago with the downgrade of European equities. We are now neutral DM equities, including U.S. stocks. But a dovish pivot by the Fed would spur us to consider leaning back into equities. Our change in view prompts us to keep an overweight to inflation-linked bonds from a whole-portfolio perspective. We prefer short-term government bonds for carry, and see scope for long-term yields to rise further as investors demand greater term premium for the risk of holding such debt in this inflationary environment. Overall we remain underweight U.S. Treasuries.

Market backdrop

Stocks plumbed new 2022 lows and bond yields edged down last week on concerns that higher rates are causing a growth slowdown. Earnings updates from large U.S. retailers underscored inflation is pinching demand – and eroding profit margins through higher costs. We see this year’s equity pullback in line with the hawkish repricing of the policy rate path. We believe the market will ultimately ease its expectations for policy tightening – but this won’t be clear for months.

This week’s U.S. PCE report is expected to show monthly U.S. inflationary pressures softening as spending shifts back to services and away from goods. Early May global PMI data could give an early read on spillovers from China’s slowdown and the knock-on impact on supply chains. We expect China’s deteriorating economic outlook to be a drag on global growth – and we think consensus forecasts for China’s 2022 GDP growth are likely to get revised down.   

Week Ahead

  • May24: Global May flash PMIs
  • May 25: U.S. durable goods; Germany GDP
  • May 27: U.S. PCE inflation and spending; Japan CPI


BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 25th, 2022 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.


Notes from the Trading Desk – Franklin Templeton

Franklin Templeton’s Notes from the Trading Desk offers a weekly overview of what our professional traders and analysts are watching in the markets. The European desk is manned by eight professionals based in Edinburgh, Scotland, with an average of 15 years of experience whose job it is to monitor the markets around the world. Their views are theirs alone and are not intended to be construed as investment advice.

The Digest

Last week global equity markets struggled for any clear direction as investors fretted about economic growth. Regionally, performance was very mixed. The S&P 500 Index closed the week down 3%, the STOXX Europe 600 Index closed down 0.6%, whilst the MSCI Asia Pacific Index outperformed, closing the week up 2.8%. Investors focused on consumer sentiment last week as corporates made clear the true impact of inflation on the consumer. Household savings have been dented of late and that has started to feed through to retailers—last week served as a wake-up call for the retail space. The ongoing war in Ukraine as well as China’s zero-COVID-19 policy also continued to weigh on global growth estimates. We are now through most of the current earnings season with 95% of the companies in the S&P 500 and 86% of the STOXX Europe 600 done reporting. Overall, earnings have surprised to the upside, by 10.5% in Europe and 5% in the United States. Outperformance in Europe was mainly driven by the energy space. Yet, market sentiment remains very negative given the latest inflation data, more hawkish central banks and growth fears. The CNN Fear and Greed Index remained in Extreme Fear territory last week. The latest Fund Managers Survey showed very high cash levels.

Inflation concerns bring on growth fears

Inflation has been a hot topic for markets for months now and there was no change last week. Eurozone Consumer Price Index (CPI) surged to 7.4% in April. Oil and gas prices reached new peaks after Russia’s invasion of Ukraine and, we believe that inflation will likely stay close to current levels until the fourth quarter. In the United Kingdom, April’s inflation accelerated to 9% year-over-year (Y/Y), a 40-year high. Rising energy costs drove last month’s jump also. April’s number was actually a touch lighter than market expectations and in line with Bank of England expectations. The latest reading will keep the cost-of-living crisis front and centre for UK politics. Germany’s April Producer Price Index (PPI) report, which measures price change from the perspective of the seller, rose 33.5% Y/Y, the biggest increase since it was first measured in 1949. Also, last week, the European Commission increased their inflation forecast for fiscal year 2022 to 6.1% from 3.5% previously.

The impact of inflation on the consumer became clearer last week following poor earnings for large US retailers. Merchandise retailer, Target said that they saw a trading down from brand to private label and that discretionary spending was suffering. With that, the stock closed down significantly last week as investors fretted about the continued squeeze on consumers and the impact on future growth. It was a similar story for Walmart, Kohls and Ross. In Europe, Richemont warned of margin weakness and closed the week down substantially. Richemont’s report pointed to revenue weakness in Asia Pacific.

All these news added to concerns around global growth. With that, we saw a number of US banks slash their growth forecasts. JPMorgan cut their US gross domestic product (GDP) forecasts for this year, with second half of 2022 growth now expected to be 2.4% vs 3.0% previously. Goldman Sachs also cut their growth forecasts. They now expect the economy to grow 2.4% in 2022 and 1.6% in 2023, down from 2.6% and 2.2% previously. Also, the latest Fund Managers Survey showed that global growth optimism was at record lows.

Despite last week’s renewed fears on growth, the Federal Reserve (Fed) commentary was notably hawkish once again. Fed Chair Jerome Powell said that the Fed would not hesitate to raise rates until there is “clear and convincing evidence that inflation pressures are abating and prices are coming down”. Powell also noted that the labour market is “extremely strong” and consumer spending is healthy, implying the Fed feels that the US consumer can tolerate higher prices for a while longer. Chicago’s Charles Evans noted that forthcoming hikes were needed for tightening financial conditions “as well as for demonstrating our commitment to restraining inflation”. Philadelphia’s Partick Harker said the US economy could withstand a “methodical tightening”. As it stands, Fed fund futures are pricing in rates of 2.75% by the end of the year.

There was plenty of rhetoric from the European Central Bank (ECB) policymakers last week. Firstly, Pablo Hernandez de Cos said that the ECB would likely decide at its next meeting to end its stimulus programme in July and raise interest rates “very soon” after that. Luis de Guindos said that that the ECB needs to move gradually and cautiously, whilst Georg Muller had noted that “gradual” meant rate hikes of 25 basis points (bps). The market expects a rate hike in July. Ignazio Visco said that a rate hike in June is “certainly” out of the question and that July is “perhaps” the right time to start hiking rates. Meanwhile, Joachim Nagel said that a July hike is possible and that more hikes could follow in quick succession. As it stands, the market expects three 25 bps rate hikes in 2022, with the first fully expected to come at the July meeting.

The Week in Review

Europe

Last week was another volatile one for European equity markets. Despite the continued push-and-pull in markets, the STOXX Europe 600 Index closed the week down just 55 bps following a late sell-off. Albeit, volumes were poor—last week’s moves lower were on the lowest volume week of the year in Euro STOXX 50 cash. European equities have seen extensive outflows year-to-date. Macroeconomic data was in focus again last week as investors debated what the latest reports mean for future inflation and subsequent rate shifts. With that, sentiment has been very cautious of late and we believe we are at the mercy of a bear squeeze on any positive news. Markets did rally on Tuesday on more supportive headlines out of Asia on Chinese technology stocks and as the COVID-19 situation appeared to be easing there too. However, this rally was short-lived as European equities gave up all their gains and more on Wednesday and Thursday as markets struggled for their next move in either direction.

In terms of sectors in Europe, renewables were notably strong last week, following some mergers and acquisitions headlines in the space. Basic resources also outperformed in Europe, making up for recent losses. Utilities also performed better last week. Increasing concerns of consumers getting squeezed is evident when we look at the week’s laggards: Food and beverage, personal and household goods, and retail stocks. Sentiment was hit further as UK Consumer Confidence reported its lowest level since 1974.

United States

It was another tough week for US equities with the S&P 500 down 3.0% and the NASDAQ Composite Index down 4.5% as fears over central bank policy error, stagflation and global economic slowdown stalked markets. For the S&P 500, the decline makes it a seventh week of declines for the index, something that has not happened since 2001, and only happened four times prior to this run. On Friday, the S&P 500 briefly fell into bear market territory, down 20% from its January peak, but the index recovered ground later that same day.

Looking at weekly sector performance, energy names rose significantly, while consumer staples and consumer discretionary names fell, following high-profile profit warnings in the space.

In terms of macroeconomic data, two sentiment surveys came in weaker than expected with the May Empire State Manufacturing Survey falling 36 bps to -11.6 and the May Philadelphia Manufacturing Business Outlook Survey falling 15 bps to 2.6. However, the April US Retail Sales data was better than expected—albeit this reading did lose its significance given the corporate warnings in the space.

Looking at other asset classes, US bonds saw yields tighten in a ”risk-off” environment with the 10-year Treasury yield at 2.78%, down 14 bps. The US dollar (USD) actually saw some respite after weeks of strengthening, with the USD spot down 1.3% with some putting this down to the suggestion we are at peak Fed hawkishness. Interestingly, US credit markets appeared calmer than European credit, with no signs of panic yet in high-yield or investment-grade spreads.

Asia Pacific

Asian equities outperformed global peers with the MSCI Asia Pacific Index seeing a 2.8% rise last week. Hopes that China would step up its support for the economy and ease the crackdown on tech stocks helped improve sentiment.

Hong Kong stocks rose 4.1% after Vice Premier Liu He said the government will support the development of digital economy companies and their public listings. On the back of this, the Hang Seng TECH index gained 6.0% on hopes that China may be ready to ease up on a year-long clampdown on tech giants.

In China, the Shanghai Composite Index rose 2% with talk of a phased reopening of shops in Shanghai. On Friday, the People’s Bank of China (PBOC) lowered the five-year loan prime rate to 4.45% from 4.60%, exceeding expectations for a move of between 5 bps and 10 bps, which should help disposable income for the middle class and counter weak loan demand.

Over the weekend, US President Joe Biden was in the region and helped sentiment further by stating he will review US tariffs on Chinese imports. He noted: “We did not impose any of those tariffs—they were imposed by the last administration”. However, he also stated that the US will defend Taiwan in any attack from China.

The economic picture remains challenging in China. April macroeconomic data released last week were weak, with Industrial Production down 2.9% and Retails Sales down 11.1%.

In Australia we saw a change of government following the election victory of Australian Labor Party leader Anthony Albanese, replacing the current Liberal-National government. There are eight seats left to be counted, with Labor requiring two more seats to hold a majority by itself in the House of Representatives. There was a muted reaction from Australian equities, with the Australian Stock Market Index rising a mere 0.1%.

The Week Ahead

Holidays:            

  • Wednesday 25 May: Sweden (half day)
  • Thursday 26 May: Denmark, Finland, Norway, Sweden, Switzerland
  • Friday 27 May: Denmark

 Key Events:

  • Monday 23 May: Germany IFO Survey
  • Tuesday 24 May: Euro area and UK flash composite Purchasing Managers’ Index (PMI)
  • Wednesday 25 May: US Federal Open Market Committee (FOMC) minutes
  • Thursday 26 May: US GDP and Jobless Claims
  • Friday 27 May: Month-end US pension rebalance

Monday 23 May 

  • Germany IFO Survey
  • Sweden Public Employment Service (PES) weekly Unemployment

 Tuesday 24 May

  • Euro area flash composite PMI Survey
  • UK flash composite PMI Survey
  • US S&P/Markit Manufacturing PMI

 Wednesday 25 May

  • Sweden Unemployment Rate and PPI
  • Germany GDP and Government Spending
  • Norway Unemployment Rate
  • France Consumer Confidence
  • US Durable Goods
  • US FOMC minutes

 Thursday 26 May

  • Italy Consumer Confidence Index
  • Italy Industrial Sales
  • US GDP and Jobless Claims

 Friday 27 May

  • Sweden Retail Sales
  • Spain Retail Sales
  • US Personal Income


Franklin Templeton Key risks & Disclaimers:

What Are the Risks?

All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.  Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Past performance is not an indicator or guarantee of future performance. There is no assurance that any estimate, forecast or projection will be realised.

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of 23 May 2022, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. An assessment of a particular country, market, region, security, investment or strategy is not intended as an investment recommendation, nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any country, region, market, industry or security. Nothing in this document may be relied upon as investment advice or an investment recommendation. The companies named herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FT affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

BlackRock Commentary: Why we still prefer stocks over bonds

Wei Li, Global Chief Investment Strategist, Alex Brazier, Deputy Head of the BlackRock Investment Institute, Vivek Paul, Senior Portfolio Strategist and Natalie Gill, Portfolio Strategist all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points:

Still stocks over bonds: We recently cut risk, but stick with stocks over bonds for now. Equity prices now reflect much of the worsening macro outlook and hawkish Fed, in our view.

Market backdrop: Markets came to grips last week with the trade-off central banks face: choke off growth or live with inflation. Yields fell and stocks bounced off new 2022 lows.

Week ahead: U.S. retail sales and other activity data will give investors a read on growth momentum. We believe the restart from pandemic lockdowns has room to run.

Equities have fallen hard this year on the prospect of rapid rate increases to rein in inflation, the tragic Ukraine war and a slowdown in China. We recently reduced risk, yet keep our modest stocks overweight. Why? The selloff means more of these risks are now priced. We also believe the Fed’s sum total of rate hikes will be historically low and see recession fears as overblown. We think equities remain more attractive than bonds, even as the historic sell-off in bonds has cut the gap between the two.

Caution: steep rate path ahead

We started the year with an overweight in equities and underweight in bonds. The macro outlook has worsened since then. The Ukraine war added to already high inflation stemming from pandemic-related supply constraints. The Fed started to talk tough on inflation, and the market has quickly priced in a series of steep rate rises (the red line in the chart), whereas it was still expecting a shallow trajectory in December (the yellow line). And we now see a rising risk the Fed will raise policy rates to a level that slows the economy. The latest: Growth in China has slowed amid widespread Covid lockdowns. Both stocks and bonds have sold off in the face of these mounting challenges. We stick with our equities overweight for now. Why? First, much of the risks to growth are now reflected in stock prices, we believe, keeping valuations attractive. Second, we still think the cumulative total of Fed rate hikes will be historically low, given the level of inflation. We see the Fed ultimately choosing to live with core inflation that’s a bit higher than its 2% target, rather than fight it because of the costs to growth and jobs.

The worsening economic outlook has prompted us to reduce portfolio risk this year. We downgraded European equities in March on the energy shock. We followed with a downgrade of Asian assets last week, coupled with an upgrade of investment grade credit and European government bonds. The sell-off in the bond market has narrowed the gap between the stocks and bonds, in our view, and created pockets of value. We still see longer-term yields rising further as investors demand a higher term premium, or compensation for the risk of holding government bonds amid high inflation and debt loads. As a result, we are not changing our overall bonds underweight and maintain our relative preference for equities.

Reducing risk

What are the risks? Today’s inflation is very different from the past 30 years, and central banks need a new playbook. Inflation is always caused by excess demand over a certain amount of supply. That doesn’t mean excessive demand is driving inflation, as has been mostly the case since the 1990s. The real question: Is demand unusually high or is supply abnormally low? We think it’s the latter. The economy is working its way through two major shocks: the pandemic and the war in Ukraine. This has created supply constraints such as a tight labor market (caused by the “Great resignation”) that will take time to resolve. Why does all of this matter? If inflation is caused by supply factors, the Fed faces a stark choice: choke off growth with higher rates – the old playbook – or live with more persistent inflation. The risk is that the Fed fails to recognize the trade-off and pushes rates to such levels they destroy growth and jobs.

Markets are waking up to the risks surrounding this trade-off, and now look to be pricing in a fed funds rate of close to 3.5% in the very long run. If that’s true, equities may have more room to fall: Higher discount rates make future cash flows less attractive. We think the Fed ultimately won’t go this high for fear of hurting growth, but recognize hawkish policy pronouncements can lead markets to believe differently. This is why we brace for more volatility in the short run – and why we are not adding to our equities overweight despite improved valuations.

Our bottom line

We stay overweight equities and underweight bonds, but have reduced risk to reflect the worsening macro outlook. The momentum of the restart of economic activity is still strong, especially in the U.S., so we don’t see a recession ahead.  We prefer developed market stocks, especially U.S. and Japanese equities. We particularly like the U.S. market’s quality bent featuring companies with strong cashflows and balance sheets. We would turn more negative on equities should the risk of the Fed slamming the brakes on the economy materialize and trigger a material slowdown.

Market backdrop

Markets are coming to grips with the stark growth-inflation trade-off central banks are facing to rein in supply-driven inflation: choke off growth or live with higher inflation. Last week, markets started to price in the risk that the Fed will push ahead with the first option. Yields on 10-year U.S. Treasuries fell, and stocks bounced off new 2022 lows. We believe the sharp trade-off will ultimately give the Fed pause before taking rates up to levels that trigger a material slowdown.

U.S. activity data and surveys will shed light on the ongoing restart of economic activity and the shift in consumer spending back to services, from goods. Market concerns around a pronounced slowdown in the U.S. miss the key point that the restart has further room to play out, in our view.

Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream as of  May 12, 2022. Notes: The two ends of the bars show the lowest and highest returns at any point this year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, Refinitiv Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.

Week Ahead

  • May 17: U.S. retail sales and industrial production; Japan GDP
  • May 18: UK CPI; Japan trade data
  • May 19: U.S. Philly Fed Business Index; Japan CPI; UK retail sales


BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 25th, 2022 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.


Notes from the Trading Desk – Franklin Templeton

Franklin Templeton’s Notes from the Trading Desk offers a weekly overview of what our professional traders and analysts are watching in the markets. The European desk is manned by eight professionals based in Edinburgh, Scotland, with an average of 15 years of experience whose job it is to monitor the markets around the world. Their views are theirs alone and are not intended to be construed as investment advice.

The Digest

Last week was volatile for global equity markets, with indices see-sawing from headline to headline, whether it be comments from Federal Reserve (Fed) members or macro data releases. Overall, there was a sense that investor conviction was low, and that positioning, rather than any real confidence in the outlook, drove market bounces. The MSCI World Index declined 2.2%, its sixth week of losses and the longest run of weekly declines since the 2008 global financial crisis. Looking across regions, the S&P 500 Index declined 2.4%, the MSCI Asia Pacific Index declined 2.5% and the STOXX Europe 600 Index rose 0.8%.

Equity market volatile with conviction low

Last week was typified by low-conviction moves in equity markets, with several headwinds and themes for investor to navigate. To pick out a few key talking points from last week, investors focused on US inflation data, Fedspeak, crypto volatility, and COVID-19 cases in China. In addition, with global markets declining for six consecutive weeks, there is an increasing debate over how much bad news is priced in, and whether markets are now oversold.

Taking a quick look at some of these themes

US inflation data: The US April Consumer Price Index (CPI) release on Wednesday was the main macro data event last week. The headline reading came in higher-than-expected at 8.3% year-over-year (Y/Y), down from. 8.5% previously. The bulls argue the decline from the prior month suggests we are at peak inflation. That said, it was still higher than expectations, with one major reason being airfares, which were up 18.6% from March and alone added about 15 basis points (bps) to the core print.

US gasoline prices also hit an all-time high, which will continue to add to inflation and squeeze the consumer ahead of the summer driving season. Ultimately, the number appeared to add to the overall air of uncertainty and, we really need to see more data before calling peak inflation.

Fedspeak: Last week, Fed Chair Jerome Powell reiterated guidance for 50 bp rate hikes over the next two meetings and said it will be “quite challenging” for the Fed to engineer a soft landing, adding that the process of trying to do so will include some pain. In addition, Fed Bank of Cleveland President Loretta Mester backed raising rates by a half point in June and July, but also said that 75 bp rate hikes cannot be ruled out forever. Overall, it was taken as positive that Fed officials seemed to rule out 75 bp hikes for now, but fears over a central bank policy error will likely remain a key narrative in to the second half of the year.

Crypto volatility: The crypto space was also a talking point, with some notable selling hitting the space.

Ukraine fallout: Energy prices remain volatile as the war in Ukraine continues, with Hungary vetoing a European Union (EU) ban on Russian oil and gas price volatility showing no sign of abating. Wheat prices have pushed back towards all-time highs as the supply disruption shows no sign of ending amid a Russian blockade of Ukraine’s remaining ports.

Chinese lockdown: There were some signs of an improving picture in China, as Shanghai reported a 58% drop in systematic cases, with less than 1,000 daily new infections. In addition, no cases were found outside quarantine. Cases also fell in Beijing. However, this morning we saw some poor Chinese macroeconomic data, with April Industrial Production down 2.9% Y/Y vs and retail sales down 7.5% Y/Y.

Where next: Given recent declines, there is much discussion around what is priced into market. Sentiment is certainly low, with the CNN Fear & Greed Index now in “Extreme Fear” Territory, a level we have often seen markets bounce from.

Looking at technical indicators, some markets are beginning to flash oversold signals, which some say may have led to the bounce in European equities last week. The STOXX Europe 600 Index (SXXP) relative strength index (RSI) hit 27.7 on Monday, which seemed to help support the market. The last time the RSI was this low, it preceded a 14% rally in SXXP.

Valuation: With the recent declines in markets, focus has also turned to valuations, which are looking less expensive. The price-earnings ratio (P/E) for the SXXP was back towards the pandemic lows, and while the backdrop is obviously poor, there is arguably more visibility than there was in March 2020.

The Week in Review

Europe

Last week was extremely choppy, but European equities managed to close in positive territory with slight gains. It felt like markets were at the mercy of positioning, given a broader lack of conviction. Familiar fears over inflationary pressures and stagnating growth remained front and centre due to macro data (US/German CPI and UK gross domestic product [GDP]). Volatility in the US technology sector and crypto added to the general sense of unease. However, calming comments from Powell, who reiterating the Fed isn’t actively considering a 75 bp move, helped boost risk sentiment, along with positive headlines out of Asia. The People’s Bank of China (PBOC) and Ministry of Commerce officials jointly said they are committed to fully boosting infrastructure investments this year. With that, we saw an unwind of some crowded trades into the end of the week, while some of the only sectors that have outperformed year-to-date (YTD)—such as energy/miners—were the worst performers last week.

Sector-wise, we saw a clear reversal of YTD trends, with the worst-performing YTD outperforming last week, and vice versa. As such, retailers were up, while basic resources/energy stocks were down. Health care also had a tough week.

Looking at other asset classes: In foreign exchange markets, the trend was continued weakness vs the US dollar. The Swiss franc hit parity vs the dollar for the first time since 2019. Bloomberg noted: “Risk aversion usually favours the Swiss franc, but the dollar has emerged as the key haven in a more inflationary environment. Traders have been eyeing the rift between the Swiss National Bank, seen as a laggard when it comes to raising interest rates, and the more hawkish Federal Reserve, leaving the franc struggling in recent weeks”.

In bond markets, there was some respite from rising yields as European yields tightened last week. The German 10-year Bund ended the week at 0.94% (-15 bps) and the Italian 10-year government bond ended at 2.84% (-30 bps), a move which some attributed to an unwind of extreme positioning and talk of peak inflation.

United States

US equities saw their sixth consecutive weekly decline, with the S&P 500 Index closing last week down 2.4%. This represents the index’s worst run since 2011. Much of the focus for the week was on the April CPI. Price action was choppy through the early half of the week in anticipation of the report, but we did see volatility drop into the end of the week as Fed officials largely pushed back against a 75 bp interest-rate hike. The CBOE VIX closed the week below 29. The energy space remains a key focus for markets, with US gasoline hitting an all-time high last week as rising pump prices have increased the squeeze on the consumer. Cryptocurrency has been another focus over the last few weeks amidst a selloff; however, Bitcoin did seem to stabilise last week.

There was a clear risk-off theme to markets last week, with investors seeking safe havens. The US dollar rallied after the inflation data. The risk-off theme can be seen when we look at sector moves last week. Defensives largely outperformed, with consumer staples higher last week.  While still Communication services, health care and utilities were all slightly lower, while real estate investment trusts, financials, and tech stocks posted the largest losses. The US 10-year Treasury yield pulled back from recent highs to close the week back below 3.0%.

Asia Pacific

Asian equities were weaker overall last week, with the MSCI Asia Pacific Index closing the week down 2.5% despite a late rally on Friday. Similar to the United States, defensive sectors also outperformed in Asia. Despite that, all sectors closed in the red. Communication services was the relative outperformer, while energy and materials stocks saw the largest losses last week.

Despite the overall weakness, Chinese equity markets rebounded last week on signs that the spread of COVID-19 is beginning to ease again, bringing hope of an end to recent lockdowns. Shanghai has managed to wipe out COVID-19 cases outside of quarantine zones. The government is rolling out measures to open Shanghai and targets to restore normal order of life in June. Chinese authorities repeated pledges to boost policy support, and the Shanghai Composite Index closed last week up 2.8%

On Sunday, the PBOC cut the lower-bound range of mortgage interest rates for first-time homebuyers in response to weak macro data. The latest macro data out of China was poor, with industrial output falling unexpectedly by 2.9% in April from a year ago. Retail sales also contracted 11.1% in the period, weaker than anticipated. The unemployment rate rose to 6.1%, with the youth jobless rate hitting a new record.

The Week Ahead

Expect familiar themes to dominate this week, with eurozone and UK CPI data out mid-week. With that in mind, we expect the scrutiny of European Central Bank comments ahead of its next meeting (June) to be a driver for sentiment around European equities. Russian GDP data will also garner attention for obvious reasons. In the United States, retail sales and industrial production data will likely to be the main talking point. As with last week, Fedspeak will also be a focus.

Monday 16 May  

  • US: Empire Manufacturing (May)
  • China: Industrial Production Y/Y (April), Industrial Production YTD Y/Y (April), Retail Sales Y/Y (April), Fixed Assets Ex Rural YTD Y/Y (April)

Tuesday 17 May

  • UK Labour Market Statistics
  • EU: GDP SA (first quarter)
  • US: Retail Sales Advance month-over-month (M/M) (April), Retail Sales Ex-Auto M/M (April), Industrial Production (April), Capacity Utilisation (April), NAHB Housing Market Index (May)

Wednesday 18 May

  • UK CPI Inflation
  • Euro-Area Final CPI Inflation
  • Russia first-quarter GDP
  • US: MBA Mortgage Applications (May 13), Building Permits (April), Housing Starts (April),
  • China: Producer Price Index Y/Y (April), CPI Y/Y (April)

Thursday 19 May

  • US: Initial Jobless Claims (May 14), Continuing Claims (May 7), Philadelphia Fed Business Outlook (May), Existing Home Sales (April), Leading Index (April)

Friday 20 May

  • UK Retail Sales
  • EU: Consumer Confidence (May)


Franklin Templeton Key risks & Disclaimers:

What Are the Risks?

All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.  Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Past performance is not an indicator or guarantee of future performance. There is no assurance that any estimate, forecast or projection will be realised.

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of 15 May 2022, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. An assessment of a particular country, market, region, security, investment or strategy is not intended as an investment recommendation, nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any country, region, market, industry or security. Nothing in this document may be relied upon as investment advice or an investment recommendation. The companies named herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FT affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

Franklin Templeton Insights: Managing Challenges in US Equity and Fixed Income Markets Today

Coming out of the depths of the pandemic, US equity and fixed income markets are facing new challenges this year amidst a rising interest rate environment and deceleration in growth. With this changing backdrop, Franklin Templeton Investment Solutions’ Ed Perks shares his latest outlook and the investment opportunities he sees across asset classes.

Key Points:

  • The US equity and fixed income markets are facing challenges due to a slowing US economy along with a significant pivot in monetary policy towards a more hawkish stance.
  • Combating inflation has become a priority, and investor focus has shifted towards the uncertain impact of rising interest rates on the economy and markets.
  • Despite challenges, US corporations are faring well so far in 2022, and the strength of the US labour market could delay or prevent a US recession.

Equity and Fixed Income Markets Facing Challenges

Looking back to the latter part of 2021, the US market environment was robust for equities, with strong economic growth that led to stock valuations that appeared appropriate to us. At the same time, the US Federal Reserve’s (Fed’s) accommodative environment—put in place during the pandemic—impacted fixed income markets.

So far this year, market performance has been challenging across a broad range of asset classes. US equities, as measured by the S&P 500 Index, are down 14.04% through 6 May 2022. Growth-oriented stocks, as measured by the NASDAQ Composite, declined even more than the S&P 500. The broader bond markets, as measured by the Bloomberg U.S. Aggregate Bond Index, have also declined this year. Investment-grade and noninvestment-grade bonds within the aggregate index have also fallen, reflecting the broader rise in yields and some weakness in corporate credit spreads.

Entering 2022 Investors expected that US gross domestic product growth would decelerate, but we still believe growth is likely to be above long-term trends. In our opinion, it was inevitable that US year-over-year growth would slow following robust growth in 2021 as economies reopened. Also, the fading monetary and fiscal stimulus contributed to the US economy slowing. Economies worldwide are also moderating, with Canada doing better than other places due to the commodity-oriented nature of its economy.

Inflation Concerns Have Become Top Priority

While economic activity in the United States has been normalising as it gets past the pandemic, a lot of inflationary pressures have been more pronounced and are rotating through different parts of the economy. This scenario is what is leading the Fed to raise the federal funds rate, and the market has baked in more frequent rate hikes for this year. These likely increases have rippled across the Treasury yield curve in general, which is what we believe is driving the challenging performance in fixed income markets. Thus, the backdrop remains highly uncertain in terms of the kind of tightening that is possible as the economy decelerates. In addition, there are other risks for investors—mainly geopolitical risks. These include of course the Russian-Ukraine war, which could further dampen economic activity in certain regions, particularly in the eurozone.

Consequently, rising inflation and its impact on the economy has become the primary focus. One of the bigger questions the market has right now is whether or not the Fed can successfully engineer a soft landing, or if a hard landing is more likely, given the pace of rate hikes and quantitative tightening starting up in June. With the Fed starting to make aggressive rate hikes and reducing its balance sheet, it is a dynamic time for the markets. Challenges are likely to stick around for quite some time. Thus, we believe that being nimble in finding opportunities will be critical.

Previous US rate hike cycles, specifically the last time the Fed raised rates in 2015–2018, played out over a long period of time as the economy generally slowed without elevating inflation. This time, it is radically different, with inflation at a very high level at the same time economic growth is decelerating. The United States has not experienced this type of inflation outlook in more than four decades, leading to newer challenges and uncertainties impacting current market performance.

Corporations Starting 2022 on a Positive Note

Historically, earnings expectations for companies tend to start the year on an optimistic note, and then decline over the course of the year. An exception was 2021, which started with a high degree of uncertainty around the level of earnings coming out of corporate America, but then surprised on the upside as companies managed supply challenges and other logistical issues.

As for the outlook for 2022, companies are generally performing well in terms of meeting first-quarter expectations. For the remainder of 2022, expectations are starting to come down as companies will likely vary in how they navigate the changing macroeconomic environment. Demand is still very strong, and challenges with logistics still exist; COVID-19 lockdowns are still occurring in China and may ripple through the United States and the world.

Meanwhile, the US labour market is nearing record low levels of unemployment, with elevated numbers of job openings. Employee sentiment is still high, and while tempered by market declines and higher inflation, household wealth and wages remain robust. The challenge for consumers is how to maintain purchasing power. In our analysis, the resilience of the US labour market—as well as how monetary policy transitions impact the economic outlook—could delay or prevent a US recession.


Franklin Templeton Key risks & Disclaimers:

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.

Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

Products, services and information may not be available in all jurisdictions and are offered outside the U.S. by other FT affiliates and/or their distributors as local laws and regulation permits. Please consult your own professional adviser or Franklin Templeton institutional contact for further information on availability of products and services in your jurisdiction.

Issued in the U.S. by Franklin Templeton Distributors, Inc., One Franklin Parkway, San Mateo, California 94403-1906, (800) DIAL BEN/342-5236, franklintempleton.com—Franklin Templeton Distributors, Inc. is the principal distributor of Franklin Templeton’s U.S. registered products, which are not FDIC insured; may lose value; and are not bank guaranteed and are available only in jurisdictions where an offer or solicitation of such products is permitted under applicable laws and regulation.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

What are the risks?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.



MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

Blue Whale Update: 2022 Performance Update

Stephen Yiu - Blue Whale Fund Manager

 

Stephen Yiu is the Chief Investment Officer at Blue Whale Capital and Lead Manager of the Blue Whale Growth Fund.

Stephen co-founded Blue Whale Capital with Peter Hargreaves, co-founder of Hargreaves Lansdown, in 2016. The Blue Whale Growth Fund was launched in September 2020 and is a long-only global equity fund focusing on developed markets.

Stephen adopts a high conviction, active approach based on
bottom-up, fundamental research.

As we approach the halfway point of 2022, we feel it is necessary to discuss the recent performance of the fund.

The fund has suffered over the first half of the year. We make a point to always present our performance relative to our comparator benchmark and therefore do not hide the fact the fund (Blue Whale Growth Fund T EUR Class) is down 23%, compared to the IA Global Sector average of -8% in 2022 (data for period 01/01/2022 – 30/04/2022). As a long-only fund dedicated to investment in our asset class, we will suffer when markets fall as they have in the last six months.

Here we review the performance in light of the Ukraine crisis and inflation woes which have weighed heavily on markets this year. In times of such macroeconomic headwinds, we often see a rotation into cyclical sectors such as oil and gas, utilities etc. It is therefore no surprise that the top performing companies in both the S&P 500 and FTSE 100 over the last 6 months have fallen into these categories. This brings me onto my first point – the Blue Whale Growth Fund is founded on a philosophy of investing in high quality businesses, at attractive valuations. The problem is that we would, in general, define businesses in the cyclical sectors as lower quality. It would be hard to argue that BT and Chevron offer the same level of quality that you would see from Microsoft and Alphabet, for example. We consequently do not sacrifice quality in the portfolio for short-term performance.

If we are invested in high-quality businesses, what has caused this underperformance year to date? Firstly, it is the rotation into cyclical stocks (miners, oil and gas in particular) which we shun. Secondly, whilst we have avoided the low-quality segment of the tech sector (Peloton, Netflix etc.), such companies are weighing on the sector as a whole. As their business models have come under greater scrutiny following the share price exuberance during the pandemic, the whole sector has taken a hit indiscriminately.

Short-term underperformance, whilst displeasing, is to be expected in any portfolio. Legendary investor Benjamin Graham famously said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” He was explaining that trends and fashions will drive short term prices, but eventually the share price will always be representative of the quality of the business.

Running a concentrated portfolio, whilst giving us the greatest chance for long-term outperformance, will exacerbate short-term underperformance. Each company in the portfolio was chosen for both its quality and its attributes. We consider they are particularly appropriate in mitigating against the key macro-risk factors of the moment – inflation and the Ukraine crisis. Put simply, the portfolio has negligible exposure to Russia, and has, what we believe to be the ultimate combination of high gross margin (70% on average across the current portfolio) and strong pricing power to combat inflation. You can read more about this in our articles “Stagflation – look for the Holy Trinity” and also “Cov-flation – the opportunities for investors in this unique inflationary environment”.

After thorough examination of the companies in the portfolio over the last few months, do we see any issues? In short, no, we only see opportunity. We define risk in the portfolio as potential for permanent loss of capital based on company fundamentals. It is hard to imagine a world in which the likes of Microsoft and Google do not play a key role in our day-to-day lives. The indicators show that such companies are only going to play a greater role in the global economy going forward. The portfolio invests in several companies that will see greater integration in a digitising world. The latest round of results for such companies, just last week, has vindicated this belief. The high-quality businesses in which we are invested are now offered at a discount to their price of six months ago, yet their prospects, if anything, look better. In the event of a deep recession (which we do not consider a likely outcome) stock markets and even the best long-only funds would doubtless suffer more pain. In those circumstances holding high quality companies would be even more important.

In summary, at Blue Whale we cannot promise consistent short-term returns, but we can promise to only invest in companies of the highest quality. The areas in which we invest, along with the market in general, have taken a hit over the last six months. This has allowed us to deploy cash into those businesses that we see offering the best opportunity for outperformance over the medium to long term. The macro challenges facing the world mean we have had to apply even greater scrutiny to our portfolio. A raft of key disposals in late 2021 and early this year, has mitigated some negative performance in the fund, whilst we have refined the portfolio with a view to defending against further disruption. We are confident that the portfolio is consequently positioned to benefit from secular trends, such as global digitisation, whilst defending against inflation and macro uncertainty.

It is you, our investors, that we value most highly. Many of you have been with us since the early days of Blue Whale, but we are also mindful there are a number of you who will have invested over the last couple of years. It is humbling that so many of you have continued to invest during this turbulent time, demonstrating your trust in our process, as the Blue Whale Growth Fund sees net inflows for the year so far. We all know that equity investments should be viewed over a five year period but we hope our medium to long-term record of outperformance, our regular updates, and the types of company in which we are invested continue to give you comfort during this disagreeable time for markets. Looking forward, we strongly believe the companies in which we are invested have the potential to deliver outperformance given at least a medium-term view.

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Blue Whale Growth Fund is manufactured by Blue Whale Capital LLP and represented in Malta by MeDirect Bank (Malta) plc.

 


Blue Whale Key Risks & Disclaimers:

The Blue Whale Growth Fund was launched in September 2020. All references to actions before this date relate to the LF Blue Whale Growth Fund.  Information on the LF Blue Whale Growth Fund is provided for comparison purposes only; it is a UK UCITS which is not registered for sale in nor is it promoted to investors in the EEA.  Whilst the investment objectives and charges are not identical, both funds are run on the same investment process.

Please note that the information provided in this article is not to be construed as advice and any views we express on holdings do not constitute investment recommendations and must not be viewed as such. If you are unsure as to the suitability of an investment for your circumstances, please seek independent financial advice. Investments can go down in value as well as up so you may get back less than you invested. Your capital is at risk. Past performance is not a guide to future performance.Blue Whale Capital LLP is authorised and regulated by the UK Financial Conduct Authority.

There are significant risks associated with investment in the Fund referred to herein. Investment in the Fund is intended for investors who understand and can accept the risks associated with such an investment including potentially a substantial or complete loss of their investment.

Past performance is not a guide to future performance. The value of investments and any income derived from them can go down as well as up and the value of your investment may be volatile and be subject to sudden and substantial falls.

Investment in a Fund with exposure to emerging markets involves risk factors and special considerations which may not be typically associated with investing in more developed markets. Political or economic change and instability may be more likely to occur and have a greater effect on the economies and markets of emerging countries. Adverse government policies, taxation, restrictions on foreign investment and on currency convertibility and repatriation, currency fluctuations and other developments in the laws and regulations of emerging countries in which investment may be made, including expropriation, nationalisation or other confiscation could result in loss to the Fund.

Income from investments may fluctuate. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Fund charges may be applied in whole or part to capital, which may result in capital erosion. The Authorised Corporate Director may apply a dilution adjustment as detailed in the Prospectus. The Fund is not traded on an exchange or recognised market.

The foregoing list of risk factors is not complete, and reference should be made to the Fund’s Prospectus, KIID and application form.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from Blue Whale Growth Fund. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

BlackRock Commentary: A rebalancing act to reduce risk

Jean Boivin, Head of the BlackRock Investment Institute together with Wei Li, Global Chief Investment Strategist, Alex Brazier, Deputy Head of the BlackRock Investment Institute and Scott Thiel, Chief Fixed Income Strategist all forming part of the BlackRock Investment Institute, share their insights on global economy, markets and geopolitics. Their views are theirs alone and are not intended to be construed as investment advice.

Key Points:

Reducing Risk: We slightly reduce risk on a worsening macro outlook. We upgrade European government bonds and investment grade credit, and downgrade Chinese assets.

Market backdrop: The Fed raised rates by 0.5% last week – the largest increase since 2000 – and signaled similar rises ahead. Long-term yields shot up and stocks gyrated.

Week ahead: Data this week may show increasing U.S. core inflation on likely higher services and housing costs. We see inflation settling at a higher level than pre-Covid.

Inflation and hawkish central bank talk have spooked investors and led to bond losses not seen since the U.S. wages are growing at the fastest clip since the 1980s. Is this the start of a “wage-price spiral” – a We nudge down risk on a worsening macro outlook: the commodities price shock and a growth slowdown in China. We also see little chance of a perfect economic scenario of low inflation and growth humming along. Last week’s market rout shows investors are adjusting to this reality. We upgrade investment grade (IG) credit and European government bonds to neutral as we see opportunities there. We downgrade Chinese assets and Asia fixed income as we consider them riskier now.

Yield on offer

U.S. labor costs, 2019-2021

Bonds are generally not attractive in inflationary times, and we remain overall underweight the asset class. Yet this year’s dramatic sell-off has restored some value in pockets of the market, in our view. First, we have warmed up to European government bonds because we believe market expectations of rate hikes by the European Central Bank (ECB) are too hawkish. We see the energy shock hitting Europe hard – and causing the ECB to move very slowly in normalizing policy. We also see the asset class as a buffer against the growth shock, after downgrading European equities in March. Second, we are seeing some value in IG credit as annual coupon income is nearing 4%. That’s the highest in a decade, as the red line in the chart shows, driven by a rise in Treasury yields (the pink area in the chart) and a widening of spreads (yellow). Crucially, we remain underweight U.S. Treasuries. We see the yield curve steepening on further rises in long-term yields as investors want more compensation for holding long-term bonds amid inflation.

The big picture

The Ukraine war, a global energy shock and the risk the Fed tries to fight the supply-driven inflation have sparked a reassessment of macro scenarios among market participants. The root cause is inflation in a world shaped by supply. It started with the supply shock from the restart of economic activity. Russia’s invasion of Ukraine added a broad commodities price shock on top of that. The Fed and other central banks are facing a tough choice now: suppressing supply-driven inflation means raising rates so high that they destroy growth and jobs. We believe the Fed ultimately won’t raise rates beyond neutral – a level that neither stimulates nor decreases economic activity – to avoid such a scenario. This means it will have to live with inflation that we see settling at a higher level than pre-Covid. We believe the eventual sum total of rate hikes will be historically low, given the level of inflation. This means we still favor equities over fixed income.

At the same time, we recognize risks have risen. The commodities price shock is set to hit growth, especially in Europe and emerging markets that are commodities importers. The Fed rightly is fast normalizing policy but could slam the brakes on the economy if it chooses to fight inflation. It’s tough to see a perfect outcome. Getting inflation down to pre-Covid levels likely means recession, as the Bank of England warned last week. And the growth outlook for China, the world’s second-largest economy, is quickly deteriorating amid widespread lockdowns in an attempt to halt the spread of Covid.

We are downgrading Chinese stocks and bonds to neutral on the deteriorating macro outlook. We see a growing geopolitical concern over Beijing’s ties to Russia. This means foreign investors could face more pressure to avoid Chinese assets for regulatory or other reasons. We previously kept our modest overweight on Chinese assets because we saw improved valuations making up for the risks. The rapidly worsening outlook for China’s growth on widespread lockdowns to curtail a COVID spike has changed this. Lockdowns are set to curtail economic activity. China’s policymakers have heralded easing to prevent a growth slowdown – but have yet to fully act. And yields on Chinese government bonds have fallen below those on U.S. Treasuries amid policy divergence, eroding their previous appeal as a source of potential coupon income.

Bottom line

We are nudging down risk amid the commodities price shock, deteriorating growth in China and tough trade-offs for central banks. We upgrade European government bonds and IG credit to neutral as we see tactical opportunities there. We downgrade Chinese assets to neutral due to geopolitical concerns and a worsening macro outlook. Overall, we remain overweight equities, with a preference for U.S. and Japanese stocks, and underweight U.S. Treasuries.

Market backdrop

The Fed raised its policy rate by 0.5% last week and said it would start winding down its balance sheet by not re-investing the proceeds from maturing bonds. Chair Jerome Powell signaled 0.5% hikes at the next two meetings in an effort to rein in inflation, and dismissed larger increments for now. We believe the sum total of hikes will be historically low, but see long-term yields rising further as investors demand higher compensation for holding long-term bonds amid persistent inflation.

Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from Refinitiv Datastream as of May 5, 2022. Notes: The two ends of the bars show the lowest and highest returns at any point this year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, Refinitiv Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.

Week Ahead

  • May 9: China trade data
  • May10: Germany ZEW survey; China credit and money data
  • May 11: U.S. consumer prices; China consumer and producer prices
  • May 12: UK GDP release


BlackRock’s Key risks & Disclaimers:

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 25th, 2022 and may change. The information and opinions are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ’forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.

Issued by BlackRock Investment Management (UK) Limited, authorized and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from  BlackRock Investment Management (UK) Limited. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.


MeDirect Bank to discuss geopolitical tensions, inflation and high-yield bonds during upcoming online webinar

MeDirect Bank is organising its fourteenth webinar in this successful series of medirectalks.  Taking place on Thursday 12th May, the upcoming medirectalk will be discussing implications of the ongoing Russia-Ukraine war and discuss what the latest developments could indicate for global economies and markets. This event will take place online and it’s free of charge.

MeDirect will be holding this event with Liontrust Asset Management PLC, a specialist fund management company that takes pride in having a distinct culture and approach to running money. The company launched in 1995 and was listed on the London Stock Exchange in 1999. Liontrust are an independent business with no corporate parent, their head office is on the Strand in London and also have offices in Edinburgh and Luxembourg.

For this talk, MeDirect will welcome two main speakers who are the Co-managers of Liontrust’s High Yield Bond and Absolute Return Bond strategies.

Donald Phillips joined Liontrust in February 2018 from Baillie Gifford to create the Liontrust Global Fixed Income team with David Roberts and Phil Milburn. Donald is co-manager of Liontrust’s High Yield Bond and Absolute Return Bond strategies. Donald had been co-managing the European high-yield strategy at Baillie Gifford since 2010. More recently, he had been involved in the portfolio construction of a US high-yield fund. Previously, Donald worked at Kames Capital with David and Phil from 2005 to 2008.  He graduated from the University of Strathclyde in 2004 with a BA in Economics.

Phil Milburn joined Liontrust in January 2018 from Kames Capital to create the Liontrust Global Fixed Income team with David Roberts and Donald Phillips. Phil is Head of Investment Strategy for the Global Fixed Income team and is co-manager of Liontrust’s Strategic Bond, Absolute Return Bond and High Yield Bond strategies. Phil had spent over 20 years at Kames Capital, launching one of the market’s first strategic bond funds with David Roberts in 2003 and developing a leading high-yield franchise. Phil graduated from the University of Edinburgh in 1996 with a first-class MA in Economics.

Together with Donald Philips and Phil Mulburn, medirectalk will be discussing the ongoing Russia-Ukraine war and discuss what the latest developments could indicate for global economies and markets in general. The speakers will also discuss energy price rises, inflation outlook and central banks’ actions with a particular focus on the global high yield bond market.

Participants will be invited to ask their questions during a Q&A session. Questions can be submitted via the online platform during the event or sent in advance to registrations@medirect.com.mt.

Webinar will be held through Brighttalk. You will be required to accept the disclaimer to register and join event on the 12th of May at 18:00. Further information, can be found here: https://medirect.com.mt/invest/medirectalk


The information given during this seminar is being provided by Liontrust Asset Management. The information contained in this talk is for general information purposes only and is neither intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available during the seminar is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness. The financial instruments discussed may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

The financial instruments discussed in this seminar may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in any of the products discussed you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

Notes from the Trading Desk – Franklin Templeton

Franklin Templeton’s Notes from the Trading Desk offers a weekly overview of what our professional traders and analysts are watching in the markets. The European desk is manned by eight professionals based in Edinburgh, Scotland, with an average of 15 years of experience whose job it is to monitor the markets around the world. Their views are theirs alone and are not intended to be construed as investment advice.

The Digest

Last week saw some extreme moves in equity markets as investors digested several central bank announcements, most notably the Federal Reserve (Fed) meeting on Wednesday. Last Thursday saw a sharp selloff in global equities, as fears around central bank policy errors regarding a stagflation environment weighed on sentiment. The ongoing COVID-19 lockdown in China and the Russia-Ukrainian war heightened investor uncertainty. In that context, all markets traded lower last week, with the MSCI World Index down 1.2% (down 14% year-to-date), the STOXX Europe 600 Index down 4.5%, the S&P 500 Index down 0.2% and the MSCI Asia Pacific Index down 2.7%.

Central Banks in Focus

Fed: Last Wednesday’s announcement was largely in line with market expectations, as the Fed increased interest rates by 50 basis points (bps), taking the fed funds rate to 1% (as expected). The US central bank also set out plans to reduce its balance sheet. This was the first time it had raised rates by 50 bps since 2000, and the first time since 2006 rates were raised in back-to-back meetings. The Fed now aims to get back to its “neutral interest rate” between 2% and 3%, although Chair Jerome Powell said a neutral rate was “not something we can identify with any precision”.

Regarding the Fed’s US$9 trillion balance sheet, it announced quantitative tightening at US$47.5 billion runoff (marginally higher than consensus) starting on 1 June (marginally later than expected, likely offsetting the faster initial pace) rising to US$97.5 billion after three months (broadly in line with expectations).

Looking ahead, Powell said 50 bp rate increases would be “on the table for the next couple of meetings” but, when asked about a larger increase, he said the Federal Open Market Committee (FOMC) was not “actively considering” a 75 bp rate hike.

US markets initially focused on the comment to rule out future 75 bp hikes as dovish and, last Wednesday saw a knee-jerk 3% rally in the S&P 500 Index, only for it to reverse the following day as investors appeared to shift focus to the overall hawkish path ahead in a difficult economic context. On the economic outlook, the Fed feels that the US economy is strong enough to withstand the measures it is taking. However, US Treasury Secretary Janet Yellen said Powell would need to be “skillful and also lucky” to see the US economy have a soft landing.

Bank of England (BoE): Following on from the Fed rate increase last Wednesday, the BoE announced its interest-rate decision on Thursday. Consensus was for a 25 bp rate hike and the BoE didn’t disappoint, raising the benchmark rate by 25 bps to 1%—the fourth consecutive rate rise. Interestingly, six monetary policy committee members voted for 25 bps and the remaining three for 50 bps, giving the announcement a slightly hawkish feel (compared to the FOMC, which many thought had a slightly dovish feel to it). In the press release, there was some (depressing) commentary warning of growing recession risk, and the BoE also forecast inflation to hit 10% by the end of the year (the highest rate since 1982).

However, some have been questioning the BoE’s (very bearish) gross domestic product (GDP) projections, which are at odds with the Bloomberg consensus and, importantly, the United Kingdom’s own Office for Budget Responsibility (OBR). Maybe the BoE is being overly (or ”conservatively”) pessimistic, or maybe the market consensus is being overly optimistic. Either way, it seems there is a very rocky road ahead and we are at the mercy of geopolitical and pandemic developments.

European Central Bank (ECB): The focus will now turn to the next ECB meeting on 9 June.  The change in rhetoric from ECB members has been notable, with a much more hawkish stance. Last week, Austrian Central Bank Governor and ECB Governing Council member Robert Holzmann said the ECB planned to discuss an interest-rate rise at its June meeting and will “probably do it.” The market now is factoring in three ECB rate hikes this year.

The Week in Review

Europe

Last week global equities made new year-to-date lows, so unsurprisingly it was a tough week for European equities. The STOXX Europe 600 Index declined 4.5% on the week. Clear headwinds included central banks raising rates into stagflation and a gloomy outlook from the BoE, causing growth and consumer stocks to buckle. Once again, the dispersion between sectors was extreme, with energy remaining one of the few hideouts, up 3.2% last week amid higher crude oil prices and positive earnings reports. Consumer products (particularly luxury goods) and real estate slumped.

It was another big week for corporate earnings, with the energy space the clear beneficiary of some good numbers (e.g., BP and Shell). In contrast, the market was unforgiving on any earnings misses, particularly so with consumer stocks (e.g., Adidas).

Once again, we saw outflows from European equities, continuing the streak.

In Ukraine, the Russian advance in the east made marginal gains, and with no mention of peace talks anymore, a long, drawn-out campaign into the summer seems probable. The impact of this on commodity and food prices is clear. Of note, fertilizer prices are now at all-time highs. In addition, the impact on supply chains was highlighted when German car manufacturer Volkswagen stated it had “sold out” of electric cars for 2022 after supply chain bottlenecks hit production.

Looking to other asset classes, European credit continues to show signs of stress amid fears over the region’s economic outlook. In addition, since 2020 the ECB has backstopped credit markets with its asset purchasing programme; as it is set to conclude in the second half of 2022, there are serious concerns over the impact of its disappearance from the market.

One of the big stories last week was the slump of the UK sterling, which fell 2.5% last week. The gloomy BoE message triggered the move, as downside risks to growth continue to rise even as the UK Consumer Prices Index (CPI) is expected to rise above 10%.

European government bond yields continue to sharply widen, with the German 10-year bund going from negative territory in March, up to 1.13%. Peripheral yields have also widened, with the spread between 10-year BTPs and bunds crossing 200 bps. This will be a concern for authorities in Italy, as its economy is heavily exposed to Russian energy imports.

Macro data for the region was mixed last week. Eurozone Purchasing Managers’ Index (PMI) manufacturing data was a little better than estimated at 55.5, but new orders had the lowest reading since June 2020. German year-over-year March factory orders also dropped far more than expected. The consumer has also been under pressure, with retail sales in Germany falling unexpectedly in March.

United States

The S&P 500 Index closed last week down 0.2% to record its fifth consecutive weekly loss, its worst run since 2011. The tech-heavy Nasdaq Index also fell 1.3%, now with five straight weeks of >1% declines. Risk-off sentiment was clear when we look at fund flow data, which showed continued US equity outflows. Focus for the week was on the Fed announcement, which initially sparked a rally in equity markets with a couple of dovish signals. The deterioration in macro datapoints was cited as the reason behind the subsequent selloff in global equities, as data out of China and Europe disappointed. Despite the dramatic moves last week, there was no sharp rise in the VIX Index, which closed at 30.19.

Meanwhile, the April US employment report was roughly in line with expectations, with 428,000 jobs added. However, there were a couple of misses within the report. There was a decline in household employment and labour-force participation, which raised concerns on the future growth of the jobs market.

US equities were very mixed at a sector level last week. Energy closed the week with strong gains helped by the rally in oil prices on the prospect of a European Union (EU) embargo on Russian oil, as well good earnings. Utilities and communication services also fared relatively well last week. At the other end, real estate investment trusts (REITs) underperformed, closing the week lower with interest rates on the rise and as US Treasury yields moved higher. Consumer discretionary stocks were also weak, with retailers under pressure. The Goldman Sachs Non-Profitable Technology Index traded down on the week as well.

Meanwhile, earnings season remained in full force, with nearly 90% of the S&P’s market cap having reported first-quarter earnings. So far, we are seeing more companies beating expectations than missing. Value and growth stocks are delivering similar revenue growth as in the first quarter; however, value stocks are delivering stronger earnings-per-share (EPS) growth. Within the United States, more globally oriented companies are delivering faster earnings growth than their more domestically oriented peers.

In terms of credit markets, the US 10-year Treasury bond crossed 3%, rising to levels last seen in November 2018. Global credit markets remain under pressure, driven by fears of slowing economic growth, faster inflation and subsequent interest rate rises. Last week was the fifth consecutive week of losses for credit markets, the longest losing streak in more than three months.

ASIA-Pacific

Although markets in China and Japan were closed for most of last week amid holidays, the week was marked by declines.

China’s market reopened on Thursday and declined on Friday. The government’s strict zero-COVID policy continues to hit economic growth, jobs and the entire supply chain. As a guide to how impactful the restrictions have been, spending over China’s five-day Labour Day holiday plummeted 43% from a year earlier to CNY 64.7 billion, or roughly US$9.8 billion. This follows the Caixin and official purchasing managers’ surveys, which showed manufacturing and services contracted at a significant rate in April.

US-China relations continue to be stretched, as US regulators added more than 80 companies to an expanding list of firms that face possible expulsion from American exchanges because of Beijing’s refusal to allow access to the businesses’ financial audits. Also, investors continue to be wary of possible sanctions on China over their tacit support of Russia, with Chinese regulators holding emergency meetings with domestic and foreign banks to discuss how they could protect the country’s overseas assets from US-led sanctions.

Later in the week, the market sold off as the government reaffirmed its commitment to a zero-COVID strategy, and amid the Fed’s rate hike and bearish BoE outlook.

Yields on Chinese government bonds declined after the People’s Bank of China said it would use incremental policy tools to support steady economic growth and stabilize employment and prices. The CNY weakened slightly against the US dollar from the prior week as corporates rushed to hedge after the currency slumped 4% in April, its steepest monthly drop since foreign exchange reforms in 1994.

Japan’s market closed the week up 0.58% despite the holidays and the volatility induced by the Fed’s decision to implement the first 50 bps raise since 2000. The yield on the 10-year government bond rose to 0.24%, from 0.21% at the end of the previous week. The yen finished the period slightly weaker, at around JPY130.51 vs. the US dollar, continuing to hover at a two-decade low.

Elsewhere, in Australia the Reserve Bank of Australia raised rates by 25 bps to 35 bps last Tuesday, and short-dated bonds traded off hard as a result.

The Week Ahead

In Europe, focus ahead will be on the German ZEW economics expectations survey, the UK Sterling and Eurozone Industrial Production (IP) reports. Rhetoric from the ECB will continue to be a focal point ahead of its June meeting. Elsewhere, US and Chinese Inflation data on Wednesday will be closely watched.

In terms of politics, commentary around the proposed EU ban on Russian oil imports will be important to track, given the potential economic impact.

Monday 9 May   

  • UK BRC sales LFL
  • French trade balance

Tuesday 10 May

  • Germany ZEW Expectations Survey
  • Italian IP

Wednesday 11 May

  • German CPI
  • US CPI
  • China CPI

Thursday 12 May

  • UK GDP
  • UK imports and exports
  • US Producer Price Index (PPI)

Friday 13 May

  • French CPI
  • Spanish CPI
  • Euro area Industrial Production


Franklin Templeton Key risks & Disclaimers:

What Are the Risks?

All investments involve risks, including the possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.  Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Bond prices generally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the value of the portfolio may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in developing markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Past performance is not an indicator or guarantee of future performance. There is no assurance that any estimate, forecast or projection will be realised.

This article reflects the analysis and opinions of Franklin Templeton’s European Trading Desk as of 8 May 2022, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. An assessment of a particular country, market, region, security, investment or strategy is not intended as an investment recommendation, nor does it constitute investment advice. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any country, region, market, industry or security. Nothing in this document may be relied upon as investment advice or an investment recommendation. The companies named herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. Data from third-party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user. Products, services and information may not be available in all jurisdictions and are offered by FT affiliates and/or their distributors as local laws and regulations permit. Please consult your own professional adviser for further information on availability of products and services in your jurisdiction.

Issued by Franklin Templeton Investment Management Limited (FTIML) Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority.


MeDirect Disclaimers:

This information has been accurately reproduced, as received from Franklin Templeton Investment Management Limited (FTIML). No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance. Any decision to invest in a mutual fund should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.

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