Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.

Topic of the week: ECB: one last hike

  • The ECB raised its rates by 25 bps due to inflation expected to remain “too high for too long”;
  • The important point comes from the change in communication suggesting that this increase is probably the last;
  • The ECB should opt for an extended status quo until mid-2024;
  • At the same time, monetary policy will become more restrictive through the end of reinvestments of reimbursement under the APP and TLTRO reimbursements;
  • The objective is to firmly anchor inflation expectations.

Market review: The ECB had no choice

  • ECB raises deposit rates to 4%;
  • ECB cuts growth forecasts amid sticky inflation;
  • The Fed may tighten policy further;
  • Higher yields having little impact on risky assets.

Axel Botte's and Aline Goupil-Raguénès' podcast

  • Topic of the Week: Oil Market;
  • Theme: A final rate hike.

Chart of the week

euro-dollar-echange-rate-and-terms-of-trade

The euro depreciated towards $1.06 despite the ECB's 25 bp rate hike. The weakness of economic surveys in the eurozone and the significant growth gap with the United States are contributing to the decline of the single currency.

In addition, the rebound in oil, and more generally in imported raw materials, is deteriorating the eurozone's terms of trade. In 2022, the surge in gas had reduced the euro below parity.

Figure of the week

Spending from climate-related events has accounted for 32% of US GDP growth since 2016, according to Bloomberg intelligence.

MyStratWeekly : Market views and strategy

Download MyStratWeekly – September 19th 2023

Listen to Axel Botte's and Aline Goupil-Raguénès' podcast (in French only)

  • Axel Botte

    Axel Botte

    Head of markets strategy

  • Zouhoure Bousbih

    Zouhoure Bousbih

    Emerging countries strategist

  • Aline Goupil-Raguénès

    Aline Goupil-Raguénès

    Developed countries strategist

Reading time : 30 min.
INSIGHTS MARKETS
The fixed income bond market is comprised of different types of debt. Subordinated debt sits at the lower end of the debt stack, just before equity. In case of a default, repayment of subordinated debt will come after the other bond tranches.  This implies that subordinated debt bears a higher risk for investors. Therefore, in return, subordinated debt bonds compensate investors with higher yields. As a result, the asset class offers a compromise in terms of risk and returns, positioning it in the middle of the capital structure, just between equities and senior bond tranches. European banks represent the largest sub-segment of the subordinated debt asset class. This is related to the regulatory framework and its stringent rules in terms of bank capital requirements. Issuing subordinated debt allows banks to increase their capital ratios while at the same time it serves to strengthen their creditworthiness. In 2023, after a turbulent month of March, the subordinated debt market has moved back in the spotlight. The asset class’s valuations have improved, offering an opportunity to gain access to higher yields from subordinated bonds issued generally by investment grade quality signatures. The subordinated debt market is characterised by a strong “euro” bias, resulting from technical factors (European regulatory framework) that favour issuance versus issuing equity to strengthen capital structures. According to Ostrum Asset Management (Ostrum AM), subordinated debt is an instrument which can be used to diversify fixed-income allocations, offering additional yield pick-up. And it can add value to responsible bond allocation as the sustainable subordinated bond market is developing.
10/03/2023
Reserved for pros
Podcast
Reading time : 30 min.
NEWS MARKETS
Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.
09/08/2023
Reserved for pros
Podcast
Reading time : 30 min.
NEWS MARKETS
Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.
09/08/2023
Reserved for pros