NEXT PUBBLICATION: 06.11.2018
The recent macroeconomic data release indicates that growth in the United States of America is on the rise. This situation did not leave the Fed indifferent, which raised the reference rates by 0.25% during the September session, suggesting that it will continue to raise rates also in the December session and possibly several times during the year 2019. This move has displaced the market that was expecting a rate hike path but not as accentuated as announced by Governor Powell.
The immediate effects of this announced increase in interest rates have been a strengthening of the greenback and a decline in the major global stock exchanges. In Italy the new laws of financial stability has been presented, the Italian government does not seem to want a tough confrontation with Brussels and has already blunt some parameters, the real European crisis could be postponed to the month of May 2019 after the European elections.
The strong fall that many Italian stocks have recorded during the recent sessions seems to be excessive and a rebound of the Italian stock exchange is quite possible, particularly on stocks of good quality. For now the biggest market risk remains the process of normalization of monetary policies and how the market will react to this process.
The decrease in the liquidity deriving from the increase in rates could have an impact on the American and European equity markets, but also on emerging markets ones. Other risk factor is the trade war between the United States and China – Rest of the world. This last factor could potentially weigh a lot and will be a harbinger of market volatility, in particular in the stock market. We believe that over the next 6-12 months the major stock indexes can potentially correct significantly.
At this stage we believe that systematic risk coverage is imperative as well as investments in alternative markets or unrelated to equity markets.
The maintenance of gold in the portfolio remains a viable alternative even if we do not expect an important increase in value for the time being.