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Market Updates with Davide Chiantore

Last week the European Central Bank surprisingly raised rates by 50 basis-points. This is a higher increase than expected, but the market did not react particularly badly.

The strong balance sheets that multinationals are presenting, in terms of revenue growth, turnover and profits, will help to offset the rate hike that the ECB is going to aggressively pursue.

As far as the equity sector is concerned, we remain quite positive and confident. In the coming months we could see a recovery in prices, especially for some sectors that have been particularly hard hit by sales, such as the industrial sector in Europe, pharmaceuticals and food and beverages.

It is believed that the situation is slowly returning to normal, although there are still unresolved issues on the horizon, such as the war in Ukraine.

As far as the bond sector is concerned, an increase in yields has been seen in the corporate and high-yield sector since mid-June.

In contrast, a decrease in yields was seen in the European government sector.
There has therefore been a widening of spreads, which is considered to be unjustified.

An interesting strategy could be to take a longer exposure to European non-government and high-yield bonds, while positioning short on European government bonds, such as the German Bund.

Very interesting is the energy sector right now. The price of oil has dropped unexpectedly. Until a few weeks ago, some analysts were estimating further growth, but now the price is below $100 per barrel.

The energy situation in Europe is still very delicate. This is why it is considered appropriate to invest in the renewable energy sector, which makes an important contribution to the diversification of supply sources and energy security.

This sector is growing strongly and is expected to generate more than twice as much energy as in 2018 by 2023.

There are some European multinationals such as Germany’s Siemens and Switzerland’s ABB that are world leaders in this sector, especially in power electronics and power transmission. These two companies can benefit strongly in the coming years from this investment trend, given the need to focus on renewable energy.

Despite rising rates and inflation, economic growth remains largely supported by the Eurozone, driven mainly by the tourism sector. It is believed that the post-Covid rebound may help to better withstand the rate hike and inflation, which have a negative impact on economic growth. Some specific sectors are managing to withstand the rise in the cost of money, such as the automotive sector, which is not particularly affected by the crisis, as it is managing to clear its backlog of orders.

The post-Covid rebound helps to offset the negative effects of the ECB’s increased aggressiveness and, above all, the rise in the cost of living, goods and services.