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Cesar Perez Ruiz

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Articles by Cesar Perez Ruiz

Weekly View – No breakfast at Tiffany’s

13 days ago

The impact of political tensions on business is ever more apparent: LVMH of France will not, after all, proceed with the purchase of Tiffany of the US. If, as seems likely, the hand of the French government was involved, this is solid evidence that political sensitivities are increasingly influencing cross-border deals – something that is likely to remain the case just as M&A in general has been declining.
Volatility is on the rise across most assets, particularly equities (although we are still some way off March levels). Sovereigns are not so vulnerable due to massive central bank intervention – some might say manipulation. With government bonds under control, we are increasingly seeing market views expressed through FX markets. Nowhere has this been more

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Weekly View – Election nerves increase

21 days ago

The sell-off in stocks last week showed a certain nervousness about the sharp run-up in tech stocks and the role of big option bets. Indeed, prices in some instances had risen too fast. But this was a technical correction. With the US tech titans generating free cash flow, we do not believe we are facing a repeat of the bursting of the dot-com bubble in 2000.  And yet, it could be that Tesla’s ambition to raise USD5bn through occasional share sales will be seen as marking a kind of high-water point—especially as the approach of the November election increases market nervousness. A Biden win, plus seizure of both houses of Congress by the Democrats, could mean higher taxes and more regulation. Although we believe the probability for such a scenario is still low,

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Weekly View – Alive and kicking

June 25, 2020

In spite of renewed fears of coronavirus clusters in Beijing, data last week suggested the more consumer-oriented sides of the Chinese economy were tracking improvements in industry, with a year-on-year increase in auto sales in May. UK retail sales were also encouraging, but the biggest surprise came from the US where May’s 18% rise in retail sales month on month was double analysts’ expectations. Popular metrics like pedestrian, air and auto traffic, credit card spending and restaurant reservations likewise indicate the US consumer is alive and kicking. We still believe it is too early to sound the all clear and will continue to track corporate defaults and unemployment trends, among others. But a robust post-pandemic recovery could well bring relief to cyclical

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Weekly View – One country, two systems at risk

May 28, 2020

Last week, German chancellor Merkel delivered a surprise about-face when she and French president Macron announced a proposal for a EUR 500bn recovery fund in the wake of the coronavirus crisis. The unprecedented plan involves the distribution of grants, rather than loans, to member states in economic need. The deal is far from done, however, as it is currently opposed by the EU ‘frugal four’, who insist on loans rather than grants, which would over-indebt countries like Spain and Italy. The European Commission will propose its own plan this week, with a final agreement during the EU Council in mid-June. Meanwhile, as lockdown restrictions eased across the euro area, purchasing manager indices for May recovered from April’s record lows, despite remaining in

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Weekly View – The ECB’s last bazooka

September 16, 2019

The CIO’s view of the week ahead.Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of the quantitative easing (QE) bond-buying programme. He fell short of lifting issuer limits, which markets took negatively. Christine Lagarde, who takes over the ECB helm next month, will need to address this issue in order to sustain this round of bond-buying beyond nine months, as until then, there is a one-third limit on the amount of outstanding bonds the central bank can hold from any single country. For now, Draghi’s last act has

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Weekly View – Brothers in arms

September 9, 2019

The CIO’s view of the week ahead.Having purged 21 moderate Tory members of parliament (MPs) who opposed him on Brexit, Boris Johnson has had to face the resignation of two high-profile members of his government, Amber Rudd and his own brother, Jo Johnson. British politics will provide more excitement this week, as a law is passed in parliament to prevent a no-deal Brexit. We feel the latest developments lower the probability of a no-deal Brexit on 31 October and support a temporary rebound in sterling. Given also that we expect fiscal stimulus in most scenarios, we have moved from an underweight stance to a neutral one on UK equities, although the possibility of election-related turbulence means we remain prudent.  Upbeat news last week included the announcement of high-level US-China

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Weekly View – Boris plays hardball

September 2, 2019

The CIO’s view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week and Italian equities outperformed. Of course, it remains to be seen how long the new coalition lasts. Mr Salvini is lurking just around the corner.Boris Johnson’s five-week suspension of parliament in a bid to deliver Brexit on 31 October is guaranteed to cause ructions in the House of Commons this

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Weekly View – A hot autumn in view

September 2, 2019

The CIO’s view of the week ahead.Last week’s ousting of Matteo Salvini’s Lega from the Italian government and its replacement by the centre-left Democratic party holds out the prospect of much less-heated budgetary discussions between Rome and Brussels this autumn and lessens the risk that Italy’s sovereign rating will be cut by Moody’s this week. Helped also by the prospect of a substantial stimulus package from the European Central Bank, Italian bond yields and yield spreads sank last week and Italian equities outperformed. Of course, it remains to be seen how long the new coalition lasts. Mr. Salvini is lurking just around the corner.Boris Johnson’s five-week suspension of parliament in a bid to deliver Brexit on 31 October is guaranteed to cause ructions in the House of Commons this

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Weekly View – Tariff train takes off

August 26, 2019

The CIO’s view of the week ahead.Last week was so full of market-moving news that ordinarily major events took the backseat. Critically, trade tensions escalated rapidly from Friday, with China announcing tariff retaliations of the order of between 5% and 10% on USD 75bn of US imports from September. Trump took to Twitter in turn, raising both current and planned tariffs to 30% on USD 250bn and 15% on USD 300bn worth of Chinese imports. This puts an already fragile global economy in greater peril, with markets correcting sharply as a result, before rallying again on Monday. Although we do not see a market collapse on the imminent horizon, we are happy with our underweight in equities and neutral position in US bonds as a recession hedge.At the same time, while the central bankers of the

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Weekly View – Don’t cry for me Argentina

August 19, 2019

The CIO’s view of the week ahead.The global economy is a bag of mixed signals. Last week, US retail sales for July came out stronger than expected, proving the US consumer remains in good shape. Hopefully, this will buoy the US economy, as it suffers elsewhere, including manufacturing and business investment. Meanwhile, data out of China and Germany, the world’s second and fourth largest economies, proved more worrying, underlining concerns about global industry as trade tensions continue to take a toll. The good news is that while the German economy shrank in Q2, the broader euro area economy appears relatively healthy, driven by the consumer. The Chinese economy on the other hand, is suffering from both weakening industrial production and retail sales.This position of relative economic

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Weekly View – Dot-com bond?

August 12, 2019

The CIO Office’s view of the week ahead.The knock-on effects of Trump’s tweets have jumped from the equity and bond markets to the economy to central banks and now currency markets. Indeed, the trade war turned tech war now increasingly resembles a currency war and a race to the bottom. The Chinese currency depreciated below CNY 7/USD after the Chinese authorities seemingly let the currency weaken on the back of Trump’s latest tariffs announcement, earning them the ‘currency manipulator’ designation by the US Treasury Department. The weaker renminbi will have a deflationary impact on the global economy, while at the same time partially offsetting the adverse economic effects of Trump’s latest tariffs on the Chinese economy.With negative-yielding bonds now composing over a quarter of the

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Weekly View – Powell throws in the towel

August 5, 2019

The CIO Office’s view of the week ahead.After a brief lull, Trump renewed escalating trade tensions with China by threatening new tariffs on USD 300bn of Chinese imports to the US. A global sell-off ensued and the Chinese authorities now appear less inclined to resist renminbi weakness relative to the dollar, having allowed the renminbi to break the CNY7/USD “psychological threshold”. Unsurprisingly, exporter-heavy indices were hit particularly hard in equities, as investors fled to safety, adding further pressure to the US 10-year Treasury yield. At the same time, Japan put fresh trading restrictions on South Korea, adding fuel to the global trade war fire. Removing South Korea from its “white list” will in effect impose new trade restrictions on Japanese exports to South Korea,

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Weekly View – Enter Borisnomics

July 29, 2019

The CIO Office’s view of the week ahead.There is a new sheriff in London Town and he is not shy with bold statements. So far as prime minister, Boris Johnson has not only pledged to take the UK out of the EU by 31 October – “no ifs or buts” – but has also signalled new tax cuts and spending plans, ranging from the police and the national public health service, to nationwide full-fibre broadband. While certainly popular issues, they also come with considerable price tags that government coffers grappling with tax cuts and the potential economic costs of a no-deal Brexit could struggle to cover. We are cautious UK Gilts, lest a new era of fiscal stimulus transpire. The EU has its hands full with weakening sentiment, as indicated by falling euro area PMIs, which again disappointed in July.

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Weekly View – SHOW TIME

July 15, 2019

The CIO Office’s view of the week ahead.In his testimony to Congress last week, Fed chairman Jerome Powell delivered a dovish report, reinforcing current expectations for a rate cut later this month. He focused on mounting risks to the US economy due to slowing global growth and persistent trade uncertainty over June’s strong US jobs report. Despite a higher-than-expected CPI inflation print for June, consistently low inflation remains the central bank’s main concern. Because the Fed is clearly on course to prolong the US business cycle as long as possible, we do not see a recession as imminent and think the looser monetary policy will support US equities, although an earnings recession could come sooner. We also think the US dollar will see moderate depreciation over the next 12

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Weekly View – The dark horse wins

July 8, 2019

The CIO Office’s view of the week ahead.Christine Lagarde stole headlines this week with her unexpected nomination to succeed Mario Draghi at the ECB. Both equities and bond markets rallied sharply around the world on the news. Given Ms. Lagarde’s past history of support for the ECB’s easy monetary policy, her appointment was taken as confirmation that the ECB will continue on its renewed dovish course after its new president takes the helm. In our view, Lagarde’s political background could go a step further in lending support to coordinated fiscal stimulus. With this and Italy avoiding an Excessive Deficit Procedure by the EU Commission, we like European high yield and have moved our position to neutral on the asset class.Banks will be first up to report Q2 earnings. After US banks

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Weekly View – TIMEOUT

July 1, 2019

The CIO Office’s view of the week ahead.The headline event at last week’s G20 summit in Osaka was the bilateral meeting between the Chinese and US presidents to discuss trade. After their last meeting ended in a stalemate, the world waited to see who would be first to blink. The rather anticlimactic outcome was that both sides have agreed not to add any new tariffs for now. The only real positive news is that Trump agreed to a partial lift on the Huawei ban, although without any clarity on what that means in practice. However, we at least have a timeout on the tech war. Meanwhile, Russia announced an agreement on oil production cuts with Saudia Arabia, sending oil prices higher. We are positive on energy as a result. Key to watch this week are the US ISM figures, after China’s weak Caixin

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Weekly View – WHATEVER IT TAKES 2.0

June 24, 2019

The CIO Office’s view of the week ahead.Last week, Mario Draghi made waves in Sintra at the European Central Bank’s (ECB) annual symposium. The ECB president gave a very dovish speech, vindicating markets’ high expectations and eliciting Trump Twitter censure. Draghi came as close as possible without actually committing, declaring that the central bank stands ready to act by using all instruments and flexibility at its disposal within its mandate. We now expect the ECB to adjust its forward guidance in July to indicate that policy rates will remain at present levels or lower through at least the first half of 2020. We also expect the central bank to cut the deposit rate by 10 basis points to -0.5% in September. As a result, we are turning more positive on European credits.In the same

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Weekly view—Pre-emptive guidance

June 17, 2019

The CIO Office’s view of the week aheadAs uncertainty continues to run high, so does anticipation around the Fed’s meeting this Wednesday. The Fed is now confronted with a dilemma: economic data is not soft enough to merit rate cuts, as evidenced by last week’s US retail sales data. However, inflation expectations have reached new lows, adding pressure on the Fed to cut. Meanwhile, markets have priced in two rate cuts for the year, the first for July. While the Fed is widely expected to deliver dovish guidance, how far they go will be decisive in terms of the timing of any cuts. So far, the Fed’s dots still indicate rate hikes next year. If market expectations for cuts are not met, we could see a jump in market volatility. Unless US-China trade talks completely derail, we expect a first

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Weekly view – Dovish murmurs

June 7, 2019

The CIO office’s view of the week ahead.ECB president Mario Draghi has gone as dovish as possible without cutting rates, saying for the first time that he is prepared to cut interest rates and redeploy quantitative easing before he leaves the bank this autumn. Any interest rate rise in Europe will not happen until the second half of 2020 at the earliest, he suggested. As global uncertainty around trade remains elevated, the outlook for large exporting economies like Germany looks every more precarious. This has prompted policy makers around the world to prepare to support their economies however they can, with Draghi pledging to “use all the instruments that are in the toolbox” to support euro area growth.In the US, dovish noises have come from Federal Reserve chair Jay Powell, who said

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June 3, 2019

The CIO office’s view of the week ahead.Last week, President Trump announced a 5% tariff on all imports from Mexico to take effect from 10 June unless the Mexican government moves to stem illegal immigration across the US-Mexico border. This rate could then rise by 5% each month to reach 25% by October if the US is not satisfied with Mexico’s response. Mexico has been one of the beneficiary countries of the US-China trade war, its trade balance with the US widening as China’s narrows. Markets have corrected as recession risks have increased, with the S&P 500 suffering one of its worst months in May. We maintain our puts in portfolios as the global outlook deteriorates.Bonds on the other hand, have outperformed, with the short end rallying aggressively, allowing gold to rise. At the same

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Weekly View – MAY DAY, MAY DAY

May 27, 2019

The CIO office’s view of the week ahead.As the results of European Parliament elections roll in, some unexpected outcomes are taking shape. While populists across the Union did win new seats, they did not fare as well as expected, while Green parties gained significant ground as voter turnout rose for the first time in four decades. Surprises at the country level could also lead to greater political instability for some constituents. In Greece, Alexis Tsipras’s Syriza party defeat means the Greek prime minister will likely call early elections, while in Germany the rise of the Greens has pushed the Social Democratic party into third place for the first time in nationwide elections. In the UK, Theresa May’s resignation last Friday and the Brexit party’s victory in European Parliament

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Weekly View – Modi makes it

May 20, 2019

The CIO office’s view of the week ahead.We are in the midst of a decisive elections season, from the surprise, poll-defying victory of the conservative coalition in Australia and Indian general elections last weekend to the European parliament elections in the week ahead. Exit polls suggest Indian prime minister Narendra Modi and his Bharatiya Janata party are likely to return to power with a parliamentary majority. This was positive for Indian equities, which we retain an overweight exposure to. Meanwhile, EU citizens (Brits included) will head to the voting stations from Thursday. These European elections are expected to be a contest for and against Brexit in the UK and pro-EU versus Eurosceptics elsewhere.We continue to see signs of a broad global slowdown. In the US, retail sales

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Weekly View – Game of chicken

May 13, 2019

The CIO office’s view of the week ahead.As a US-China trade negotiation impasse became evident last week, markets corrected a bit, particularly cyclical sectors. Given the strong US economy, Trump is feeling empowered to pursue his agenda, raising existing tariffs from 10-25% on USD 200bn worth of goods with immediate effect and threatening more. Now we will wait to see how China retaliates. For the time being, we feel assured that the Chinese authorities will not use currency or its US Treasury holdings as a weapon, although escalation otherwise is to be expected. So far both sides have found alternative sources for the goods impacted by tariffs (e.g., China is importing soybeans from Brazil) but as the tariffs move up the value chain, it will become increasingly impossible to do so. We

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Weekly View – The final countdown

May 6, 2019

The CIO office’s view of the week ahead.Last week markets were relatively muted, with commodities down, developed markets flat and emerging markets up slightly. That brief period of calm has already ended, with Trump’s Sunday tweets sending Chinese markets sharply down on Monday. With the Chinese scheduled to attend the next round of trade negotiations in the US on Wednesday, the US president is putting extra pressure on China to concede to US demands and seal a deal through threats to increase tariffs on Chinese goods to 25% this Friday. Trump is in his full “art of the deal” mode as usual, but this may not work, given that the Chinese have cancelled talks in the past. We can expect a volatile week in markets ahead, but still think a deal between the two largest economies will be reached

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Weekly View – A Socialist victory

April 29, 2019

The CIO office’s view of the week ahead.Spain’s governing Socialist party swept to victory at the weekend’s general elections, which enjoyed the highest turnout since 2008, with a 75% participation rate. Taking 29% of the vote however, the Socialist PSOE party is far short of an absolute majority and will need to form a coalition, which will likely be fragmented and unstable given the election results. Furthermore, an alliance is not likely to be confirmed before Spain’s regional elections at the end of May. This turn to the left implies less fiscal discipline and higher taxes in Spain ahead, which may add to concerns around Italian budget negotiations this autumn. We remain negative on Spanish assets and peripheral bonds for now.Oil prices reached a high for the year after the US

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Weekly View – Flextension?

April 8, 2019

The CIO office’s view of the week ahead.Risk assets were positive across the board last week, with volatility falling back into low territory. The rally was driven by encouraging signs from the world’s two biggest economies. In China, a turn in economic indicators has started to show through with manufacturing purchasing manager indices (PMI) moving back into expansion territory in March. At the same time, the US has returned to a ‘Goldilocks’ environment, with Friday’s solid employment report boding well for continued growth, while inflation remains absent and the Federal Reserve dovish. German Bund yields have also rebounded. We maintain our short duration call in European bonds.Later this week will kick off the Q1 reporting season and we will be looking for the stabilisation of

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Weekly View – Yields inverted!

March 25, 2019

The CIO office’s view of the week ahead.Last week, the 10-year US Treasury yield dipped below the yield on the 3-month bill for the first time since 2007, a year before the last recession. Should we be worried? Not excessively. Yes, the Federal Reserve has lowered its rates and growth forecast (just like the European Central Bank – ECB – before it), German manufacturing has slumped, and the Chinese economy is still in a funk. Yet we think that the signals sent by the yield curve have been distorted by central banks’ asset purchases of recent years. Rising inflation expectations point to some renewed upward pressure on rates and current market pricing of rate cuts is too extreme. But prolonged rate flattening is bad news for some equity sectors, notably banks. The clock is ticking, so we

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Weekly View – Third time lucky?

March 18, 2019

The CIO office’s view of the week ahead.Last week, “Brextension” was confirmed by the UK Parliament, which voted in favour of a Brexit delay by 413 to 202. However, we are far from out of the woods yet as the EU must next approve the request, for which the UK must offer a satisfactory justification as to why they need it and how it would be used. For this reason, Theresa May’s deal may pass a third vote in parliament this week. If not, a long extension is possible, with president of the European Council Donald Tusk already having given guidance that the EU should remain “open to a long extension”. We will be watching how the Brexit evolution unfolds this week.On the bright side, good news out of Europe has finally surfaced, with positive industrial production growth in the euro area in

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Weekly View – “Draghed” down

March 11, 2019

The CIO office’s view of the week ahead.ECB chief Mario Draghi confirmed a gloomy outlook on the European economy last week in announcing a monetary policy U-turn of his own. Not only were euro area growth and inflation projections cut, but an interest rate hike was ruled out for 2019. The central bank will also launch a new programme of targeted long-term refinancing operations (TLTRO) – loans to euro area banks – but under less generous terms than had been expected by markets, given that these loans will be indexed at the refi rate (0.0%), rather than at the lower deposit rate (-0.40%). Major stock markets suffered their worst week since December on the back of the unoptimistic outlook, with bank stocks particularly hard hit, while Italian government bonds rallied. We prefer to play

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Weekly View – Still going on and on

March 4, 2019

The CIO office’s view of the week ahead.Chinese equities stole the show last week on optimism over US-China trade negotiations and MSCI’s decision to gradually increase inclusion of Chinese A-shares from the current 5% to 20% in 2019. This will bring China’s weighting in the MSCI Emerging Market (EM) index to 3.3% in November from its current 0.71%, translating to up to USD 125 billion of Chinese domestic equity inflows this year. Market participants reacted positively, despite a weakening Chinese macro picture, with deteriorating indicators in manufacturing suggesting further economic deceleration in Q1. We are optimistic that the Chinese government stimulus combined with President Trump’s determination to secure a trade deal will ultimately bode well for Chinese markets this year and

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