Weekly Newsletter

Last week the U.S. Fed remained interest rates unchanged. Although markets used to celebrate such events at former Fed meetings this time was different. Fed cited both strong US dollar and weak global economy which raised investor concerns and caused markets to drop instead.

 

Currently investors sentiment is bad. On the one hand the market is afraid of global recession lead by China sending equities and high yields lower. On the other hand any positive economic data cause investors to fear US interest rate hikes sending risky asset lower as well.

 

Last weekend Volkswagen said it faked pollution controls. The scandal has been widening to at least 11 million cars worldwide. Standard & Poor’s placed its A rating on VW on CreditWatch negative. This incident could also indicate a wider industry problem, if other manufacturers have followed similar practices, and it may lead to tougher industry-wide regulations and requirements for diesel engines.

 

Current high volatility and low prices provide great opportunities in structured products on car makers. However conditions change from day to day. Please check back with us if you are interested.

 

So where do markets go from here? Erwin Lasshofer and his INNOVATIS team expect a slowdown in China which can be stabilized though. See also the China analysis of our last newsletter. The ECB will continue quantitative easing. We do not expect any inflation or accelerating economy in the US. So there is still no need for rate hikes. And if there are any they will be very limited and just to save face after announcing them.