«He who doesn’t give everything doesn’t give anything» (Helenio Herrera)
There cold shower. The words of Jerome Powell on monetary policy they consolidate the concerns of operators on the possibility of one market correction. Wall Street in particular he is unable to interrupt the series of sessions at a loss (they have become three since the beginning of the month). After a record first quarter, the stock markets changed mood due to theUS inflationmore tenacious expected. The market is increasingly convinced that Fed will postpone The rate cutfor almost 1 year at 5.25-5.5% and at the highest levels for over 20 years, from June to the end of summer if not even after the presidential elections. Different situation in Europewhich it should cut rates already at June. The latest data on inflation in the Eurozone (+2.6% March figure, in line with expectations) consolidate this expectation. The misalignment between both monetary policies has as a consequence the strengthening of the dollarwith positive repercussions for theEuropean economyin particular the Italian one which this week also celebrated the Made in Italy which reached altitude in 2023 €420 billion in exports. The probable delay in the reversal of monetary policy in the US also pushed the yield of 10-year Treasurywhich remains above 4.6%, level that pays a lot attractive L’bond investment. Finally the petroliumwhich remains at the mercy of geopolitical tensions. For the moment, Israel’s reaction to Iran’s attack is set to be moderate and so the price of the (the most widespread futures contract in the world) remains below the $90 threshold removing the prospect of a resurgence of inflation.
Does Italy lose the shield?
THE Italian government bonds they go like hotcakes both on the marketwholesale That retail. An interest related tohigh yield offeredcompared to a default risk practically null despite one of the highest debt-to-GDP ratios in the world. According to the World Economic Outlook, the International Monetary Fund has in fact predicted that the Italian debt will continue to rise until 2029 reaching 144.9% from 137.3% last year. But what does this serenity depend on? From 2022 our government bonds benefit from theTpi effect“Transmission Protection Instrument” also known as “anti-spread shield”program according to which the ECB undertakes to buy securities of a particular country if this will end under attack from the markets. One instrument never put into operation, as their very existence has so far served to encourage investors to buy Italian securities without worries about fragile finances. But something could change. At the beginning of April, the Minister of Economy, Giancarlo Giorgetti, defined the opening of a procedure for excessive deficit towards theItaly by the European Commission due to the deficit above the 3% threshold. Statements that sparked a alarm bell in the operations rooms, since one of the conditions envisaged by the ECB in order to activate the Tpi is that the Village who needs it is not the recipient of a procedure for excessive deficit. The ECB president Christine Lagardeto a question about the ICC during the press conference following last week’s meeting, responded that being in proceedings for excessive deficit is one of the “alternatives” which will be taken into consideration in the process of deciding whether or not a country can take advantage of this tool. Not a confirmation but doubt is starting to creep into desks around the world. All this just a few weeks after the start of the collection of a new tranche of BTP Value.
Trend is not your friend
Instead of trying to move up the moves from the central banksBetter bet on long-term investment themes. This one strategy highlighted by the Quantitative Equity Product Team of Schroders (LON:) that he identified seven key themes for 2024: Recession Averted, Long Term Investing, Magnificent Seven, Tech Sector, Valuation Dispersion, Geopolitics & Elections, ESG Loss of Momentum. In particular, experts underline theimportance of evaluations: L’ it started 2024 at about 21 times forward earnings (P/E)with a almost 20% premium on the median of 15 years. Using Cyclically Adjusted Price Earnings (CAPE) instead, the price/earnings ratio rises to 31 times, 22% higher than the post-1990 average, leading to the hypothesis that future stock returns they will be lower than today. Scenery slightly different for them shares of other countriesbecause the average CAPE in the rest of the world travels at 15 times and it is slightly discounted compared to recent history. Schroeders concludes by arguing that the high dispersion of evaluations opens to various opportunities with significant potential for the stock market. Among the most interesting are the return of quality and defensive titles, theattractiveness of small caps (in Italy focus on Euronext Growth Milan), value investing, with high-quality stocks at reasonable prices, and Emerging Markets. Not surprisingly since April The Chinese stock indexes are the best in the world.
