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FK: Market Commentary A Publication of

Finanz Konzept AG

4th Issue 2018

News:

New Collaboration with

Evolute - a Platform Provider of the Future

à continue reading on page 9

Stock Markets: The Trade War Between the Usa and China: An Overview à continue reading on page 5

Bond Markets Are Booms Dying of Old Age? à continue reading on page 6


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Table of Contents

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Editorial

4

Short Summary

5

Stock Markets

6

Bond Markets

7

Forex Markets

8

Commodity Markets

9

News

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Our Services Portfolio Analysis

Imprint Publisher: Marketing: Composition: Assistance: Frequency: Design: Images:

Finanz Konzept AG Schulhausstrasse 42, 8002 Zurich, Switzerland Lars Oberle, Daniel Kรถchli Lars Oberle Dominik Fleischer, Jeremy Blaser Quarterly Tim Has Milan Rohrer, Josefstrasse 20, 8005 Zurich

Disclaimer This document was created by the Finanz Konzept AG. The opinions stated in it are the property of the Finanz Konzept AG at the time of compilation and can be revised at any time. The market commentary is only intended to provide information and to be used by the recipient. It neither represents an offer or a request on the part of the Finanz Konzept AG to purchase or sell stocks and bonds. Reference to the performance in the past is not to be understood as an indication for the future. The information and analyses contained in this publication were compiled from sources, which are regarded as reliable and credible. However, the Finanz Konzept AG is not responsible for their reliability or integrity and disclaims any liability. Assets in foreign currencies are subject to change in currency exchange rates. Neither this document nor copies thereof may be sent to the United States or taken there or be distributed in the United States. It is possible that the distribution in other countries can be restricted by local laws and directives. This document may not be copied without the written approval of the Finanz Konzept AG. Order the Market Commentary: via E-Mail: info@finanz-konzept.ch via Post: Finanz Konzept AG Schulhausstrasse 42, 8002 Zurich, Switzerland

FK: Market Commentary 4th Issue 2018


Editorial

Dear customers of Finanz Konzept AG, dear readers! Whether due to the trade disputes, Brext negotiations or the developments in Italy, the media has strongly been characterized by political uncertainties in the third quarter of this year. Not only this, but also the increasingly restrictive tendencies in central bank politics raise further questions about the developments of the financial markets. Nevertheless, the economic growth in Europe and USA seems to remain largely solid, the question is for how long? The USA once again imposed custom duties on Chinese products and threatened with further escalations. Reason enough to take stock of what happened in the trade war and to determine the extent of the damage to the global economy.We also will analyse the ongoing economic upswing and discuss the possibility of a timely downturn against the background of current monetary policy and the argument of duration dependency in this edition of

our Market Commentary. Finally, we derive a suitable strategy for equity, bond, commodity and currency markets from the developments in geopolitics, monetary and fiscal policy.

Yours sincerely, Lars Oberle Director

FK: Market Commentary 4th Issue 2018

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Short Summary Money and Capital Markets 30/06/2018

31/09/2018

3 Mt.

12 Mt.

CHF

-0.068

0.041

EUR (DE)

0.303

0.472

GBP

1.278

1.576

à

à

USD

2.860

3.069

JPY

0.031

0.130

à

à

• • •

Risk surcharges on high-yield bonds have risen Expecting rising interest rate in the USA EU Central Bank ends quantitative easing by the end of the year

We recommend: • Maintain high cash ratios in EUR and CHF to take advantage of short-term opportunities • Short-term US corporate and government bonds (USD) • Reduce long-term bonds (CHF, EUR) • Sell Italian government bonds with maturities of > 2 years

Stock Markets 30/06/2018

31/09/2018

3 Mt.

12 Mt.

SMI

8,609.30

9,087.99

EUR Stoxx 50

3,395.60

3,399.20

FTSE 100

7,615.63

7,510.20

S&P 500

2,718.37

2,913.98

Nikkei

22,304.51

24,142.50

DAX

12,306.00

12,246.73

  à   

à à à à à à

• • •

Increasing selectivity of regions and sectors among investors Rising interest rates as a future negative factor for US equities Economy allows further yields (for now)

We recommend: • European equities with backlog compared to US equities • Exploiting positive market phases to reduce shares • Opportunities for a year-end rally are intact

Forex Markets 30/06/2018

31/09/2018

3 Mt.

12 Mt.

EUR/CHF

1.1577

1.1390

à

à

EUR/USD

1.1685

1.1609

à

EUR/JPY

129.33

132.06

GBP/CHF

1.3086

1.2796

USD/CHF

0.9907

0.9815

à

à

• • •

CHF sought after as a haven EUR/USD in sideways movement (for now) JPY remains underrated

We recommend: • EUR/USD neutral • CHF neutral • Underweigh GBP • Overweigh JPY • Emerging market currencies only selectively with potential

Commodities 30/06/2018

31/09/2018

3 Mt.

12 Mt.

74.36

73.16

à

Gold (USD)

1,253.18

1,191.69

à

Silber (USD)

16.11

14.60

à

Platin (USD)

847.50

811.98

à

Rohöl WTI (USD)

• •

Fears of supply shortfall due to Iran sanctions drive oil prices to annual highs The gold/silver ratio at an all-time low since 1990

We recommend: • Holding precious metals for portfolio diversification • Buying gold in events of further setbacks • Silver with anticyclical trading opportunities

Crypto Markets 30/06/2018

31/09/2018

3 Mt.

12 Mt.

6,391.50

6,618.10

à

ETH (USD)

453.85

232.75

XRP (USD)

0.46786

0.58240

à

à

BCH

747.95

530.19

à

à

81.010

61.050

à

à

BTC

(USD)

(USD)

LTC (USD)

FK: Market Commentary 4th Issue 2018

• • •

Corrections of the cryptocurrency bubble are still in progress Bitcoin remains the most stable compared to altcoins Market capitalisation still at USD 220 billion approx. -80% since its’ peak

We recommend: • Hold existing positions • Postpone acquisitions


Stock Markets

The Trade War Between the Usa and China: An Overview As Trump already announced in July, further punitive tariffs were imposed on Chinese products with a trade value of USD 200 bn on 24 September, such that around half of imports from China are currently subject to tariffs. In addition, if the Chinese government retaliates further, the president threatens to impose additional trade volumes of USD 267 bn. So far, China has reacted to the US sanctions with a corresponding countermeasure. Immediately after the recent sanctions by Trump, the government in Beijing announced that it would expand the affected trade volume by USD 60 bn worth of US products. Currently, more than USD 50 bn are covered by the sanctions. While imports of goods from China to the USA are worth USD 520 bn, the export volume of American products is significantly lower at USD 127 bn. If the announcements as shown in the chart below are put into effect, most Chinese and American export products will be subject to sanctions.

that the impact on the Chinese economy is limited, the potential impact on the Chinese economy should not be underestimated, as the US has announced an increase in tariffs in addition to an expansion of the product list. At the same time, a further escalation of the trade dispute also has negative consequences for the US, with American agriculture among the losers of the trade war. The impact of the sanctions on the two main players as well as on Europe and the emerging markets is continuously monitored by Finanz Konzept. Using fundamental data, we analyse how the economy develops, considering various aspects. At present, growth is still robust enough to withstand such conflicts. However, if trade disputes escalate, this can change abruptly and lead to unrest in the equity market.

In view of the fact that the Chinese economy could come under greater pressure in the coming months as a result of the punitive tariffs imposed, the Chinese government is planning fiscal policy measures. In fact, a state financial injection could prove helpful in compensating for the shortfalls resulting from the trade dispute. Although fundamental data suggests

Trade Volumes Affected (in USD billion)

US Products

Chinese Products

0

100

200

Effectively

300

400

500

600

Announced

FK: Market Commentary 4th Issue 2018

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Bond Markets

Are Booms Dying of Old Age? In our previous Market Commentary, we showed you by analysis fundamental data, that the economy is still expanding. This upward trend has been going on since 2009 and remained stable in the third quarter of this year. A historical comparison indicates that the upswing lasts longer than most previous expansions.

died of the old age, they were all murdered by the Fed”. In summary, it can be said that further market developments should be explained by the usual suspects such as geopolitics, fiscal policy and monetary policy, rather than by the age-related weakness of an ongoing expansion.

Assuming that economic expansions are duration dependent, concerns about an imminent downturn are rising. It is argued that an upswing–similar to an organism–becomes weaker with increasing age and reacts more sensitively to shocks. In contrast, the renowned scientist Glenn Rudebusch uses survival analysis to argue that an upswing cannot die from old age itself. In other words, the likelihood that the economy will move from a boom to a downturn remains almost constant as the upswing continues. Even the well-known economist Rudiger Dornbusch is not convinced by the argument of duration dependency and highlights the importance of monetary policy: “None of the postwar expansions

The European Central Bank is pursuing a more restrictive course in the fourth quarter by reducing bond purchases. Similarly, the US Federal Reserve plans a continuous increase in key interest rates until the end of 2019. Although the end of the expansionary monetary policy will have a dampening effect on the economy, the measures will not necessarily lead to a downturn, but will rather prevent the economy from overheating, considering that economic growth is still fairly stable. The bond markets do not remain unaffected by this policy. With every interest rate hike, bond prices continue to fall, leading to very painful losses for conservative, long-term portfolios depending on the speed of the interest rate hike.

Current Upswing Lasts Longer Than Average 1991-2001 2009- ? 1961-1969 1982-1990 2001-2007 1975-1980 1949-1953 1954-1957 1945-1948 1970-1973 1958-1960 1980-1981 0

20

40

60

80

Period in Months

FK: Market Commentary 4th Issue 2018

100

120

140


Forex Markets

Forex Markets: Investors Seek Security Although there are hardly any signs of a possible euro crisis 2.0 in the real economy, the CHF has already strengthened by 5 per cent against the EUR since May 2018. This is even though the Swiss National Bank (SNB) continues to keep interest rates negative. Should the fear of a new euro crisis get hold, investors tend to invest in safe currencies in order to avoid the negative consequences. An overweighting of currencies such as the Japanese yen or the Swiss franc can anticipate such a dynamic. In contrast to the CHF, the Japanese yen is currently fairly valued, which is why we currently prefer it. However, we consider the British pound less attractive. The Brexit negotiations are proving to be extremely difficult. The official deadline for the negotiations expires next year, which will increase uncertainty. The chart shows the development of these currencies against the EUR over the last six months.

Developments in the various areas of monetary, fiscal and geopolitical policy–as explained in the two previous articles–interact and have a significant impact on the foreign exchange markets. The US Federal Reserve has already imposed a rise in interest rates and plans to introduce further hikes. The rising interest rate differential between the EU and the US is attracting investments in the US Dollar. We, therefore, continue to expect the US dollar to gain strength. The expectation of a rising interest rate differential has already been mostly priced in. We are therefore continuously reducing the US dollar with further strength. An initial interest rate hike by the ECB is expected in mid-2019, which could lead to early surprises in the EUR, catching some investors off guard. Despite the expectation of an increasingly restrictive monetary policy in Europe, investors are avoiding the EUR due to unsolved problems in Italy. This combination leads to higher volatility in the currency markets. In this environment, the CHF is already regarded as a popular safe haven.

104.00 103.00 102.00 101.00 100.00 99.00 98.00 97.00 96.00 95.00 94.00 93.00

EUR/USD

EUR/CHF

EUR/GBP

24.09.2018

17.09.2018

10.09.2018

03.09.2018

27.08.2018

20.08.2018

13.08.2018

06.08.2018

30.07.2018

23.07.2018

16.07.2018

09.07.2018

02.07.2018

25.06.2018

18.06.2018

11.06.2018

04.06.2018

28.05.2018

21.05.2018

14.05.2018

07.05.2018

30.04.2018

23.04.2018

16.04.2018

09.04.2018

02.04.2018

92.00

EUR/JPY

FK: Market Commentary 4th Issue 2018

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Commodities

Oil Gains Continue to Bubble, and Gold Loses Its‘ Shine Politics turn commodity markets upside down. While gold continues to lose its radiance, oil profits continue to bubble. What are the reasons for this development? The US sanctions against Iran will come into force in the coming weeks. China unexpectedly cut oil imports from Iran and India, South Korea and Japan have already completely stopped imports. Before the threatened sanctions Iran produced 2.5 million barrels of oil per day. At present, it is still 1.8 million barrels and could sink to 1 million barrels with the introduction of the sanctions. A decline to this level could be relatively well offset by Russia and Saudi Arabia. However, there is a lack of incentives for both countries to compensate for the shortfalls. On the one hand, keeping the oil price artificially high leads to higher profit margins, on the other hand, it damages the USA. A persistently high oil price has a

FK: Market Commentary 4th Issue 2018

negative impact on the US economy. The stress on the supply side could last for some time but is now included in the price. At the end of the year, the oil price should be around 70-80 USD/barrel again. In contrast to the oil industry, gold is not benefiting from these uncertainties. Unsettled investors fled directly into the US dollar. Rising real interest rates in the dollar zone make gold relatively attractive. The rising US dollar led to a decline in precious metal prices. The chart shows the gold price and the inverted dollar index (blue line). A sinking blue line means a stronger US dollar. It is clear that a stronger dollar has the decisive influence on the gold price development. We continue to believe that gold should be bought in the event of further weakness.


News

New Collaboration with Evolute a Platform Provider of the Future In contrast to many competitors in our industry, we see digitisation as an enormous opportunity to continuously increase the benefits for our customers. We are therefore pleased that we were able to enter into a cooperation with Evolute after a lengthy evaluation process. With its platform, the Swiss start-up company offers a unique, comprehensive digital asset management solution for independent asset managers and was selected by the Zurich School of Economics as one of the 12 most promising Fintech solutions in Switzerland. The intelligent platform combines Portfolio Management, Client Relationship Management and Settlement and also offers support in complying with regulatory requirements. Through this collaboration with Evolute, our customers will benefit from the following opportunities in the future: - - - - - -

Digital management of customer records in a single location Consolidation of assets across multiple banks Digital customer access to the asset overview at any time via App Comprehensive and personalizable asset analyses Customizable reporting from more than 30 modules Ongoing risk controls for the efficient fulfilment of client mandates

FK: Market Commentary 4th Issue 2018

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Our Services

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FK: Market Commentary 4th Issue 2018


Portfolio Analysis

How Well Does My Portfolio Comply With Me? For many investors securities are an essential component of their retirement provisions, while others mostly want to maximize their ongoing income. For one, security is their main focus, while the other is prepared to accept risks in exchange for opportunities. The quality of a portfolio is therefore primarily measured by how well the investment strategy and investment goals fit together. A security portfolio is more than just the sum of individual shares and investment funds. On the one hand, we mix together the risk and yield profile of your overall portfolio on the base of your investment goals and your personal situation, on the other your current statements of deposited securities. We calculate probabilities of default and yield expectations and compare your portfolio with the benchmark (comparison index). We present this analysis to you, together with our proposals for optimisation in a personal conversation.

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Market Commentary 4th Issue 2018  

Market Commentary 4th Issue 2018

Market Commentary 4th Issue 2018  

Market Commentary 4th Issue 2018