Weekly Newsletter

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Erwin Lasshofer and his INNOVATIS team wish you a happy and prosperous 2016!

Almost any risky asset classes has been heading down during the first days of the year. Major stock markets have lost 5-10% so far. What has happened during the turn of the years?

Little. It seems global markets are only now incorporating the US Fed rate hike we have seen just before Christmas. Most market participants had been prepared for this event by US Fed communication. Many analysts expect few and small further steps since there is no inflation and from the rest of the world rather weak economic data.

According to Fed’s Beige Book the absence of wage increases makes it difficult for the central bank to push up short-term interest rates further. This seems so be changing now – see also our chart of the day! The Bureau of Labor Statistics report for December see the annual change jumping to 2.5%. According to Bloomberg the analyst survey expects 2.7% for January.

Now more and more investors (and debtors!) around the world wonder if the rate hike in December was rather a big turn than a one-time event. Investors have to predict the yield level for the next couple of year to discount (uncertain) cash flows and to determine their risk appetite. The Fed has to forecast economic activity and financial liquidity in at least six months due to the time lag of their actions. This uncertainty causes volatility which had been rather unusually low during the last year than being extremely high right now.

Erwin Lasshofer and his INNOVATIS expect volatile markets trending sideways which is a favorable environment for issuing structured products.