Oct. 2016 || Newsletter

Investment Perspective
During a month where global equities ended largely unchanged, the policies of Central Banks continued to be the main drivers of the markets’ behaviour in September. Following a positive start to the month, equities retreated after ECB President Mario Draghi disappointed investors by keeping the bank’s policy unchanged and by not committing to more stimulus once the current QE program expires in March 2017. Draghi gave the impression that the ECB had largely fulfilled its mandate as he urged governments to help out with looser tax and spending policy and economic reforms. Stocks were also hurt by the weakness of the European banking sector following the news that the U.S. Justice Department was claiming $14 billion from Deutsche Bank to settle a probe related to the subprime mortgage crisis in 2008.

Equity markets then rebounded after the Bank of Japan announced a change of its policy and the Federal Reserve kept borrowing costs unchanged. The Bank of Japan decided to put less emphasis on the size of its QE program and to cap the yield on the 10Y government bond around zero percent. Its main objective is to control the slope of the yield curve and thus limit the negative side effects of its policy, especially for the financial sector. The key message from the Federal Reserve was that, even if the case for a rate hike had strengthened, it had opted to wait a little longer and more or less promised that it would act in December.

Once again, the European banking sector underperformed the broader equity markets as it dropped by close to 4% during the month due to the pressure on Deutsche Bank’s share price and on other lenders. Deutsche Bank is facing a crisis of confidence due to potentially insufficient legal provisions and the risk of having to raise fresh capital at the most inappropriate time.

Newsletter summary

  • Equity markets are flatlining
  • Investment Strategy
  • Portfolio Activity/News

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