Expert opinion

The massive cyberattack that targeted 300’000 devices in 150 countries around the world one week ago, including important social infrastructures, businesses and private users, raises serious question about growing internet vulnerabilities and computer safety. It is still unclear who is the responsible for the ransomware attack, government agencies around the world are investigating, but one thing is certain: the growing menace of cyber-attacks is escalating, governments and companies are expected to increase spending on IT security after being caught out by the attack and the firms providing IT security services are poised to expand.

Latest reports on the Canadian economy showed strong job creation and lingering housing market overheating. These were early signs for a rate hike. In your opinion, should we expect the BoC to raise interest rates? Why?

No, I do expect the BoC to raise rates anytime soon, as there still are some downside risks that the Bank of Canada wants to make sure do not materialise, especially in the US trade policy. Another issue is that inflation is still below the Central Bank’s target. There is still time for the excess capacity to be reduced before a rate hike becomes appropriate.

Recent years have seen strong growth trends in the European corporate debt markets. This has provided a solid base for EHY to grow, becoming increasingly diversified with improved overall credit quality. Rather unsurprisingly, it is more appealing to investors as a result. With two full credit cycles since the late 1990’s behind it, the EHY sector is now an integral part of the global leveraged finance market. It may still be perceived as the smaller sibling of US High Yield, but that masks how fast it is growing and maturing.

The Saudi strategy of not reducing production in 2015 so as not to lose market share and at the same time knock American shale producers out of the market was only partially successful in that market share was maintained while American shale oil producers were put under pressure.

The political risk is now behind us in France, it is time to go back to fundamentals. While underlying conditions in the global economy are strengthening, some data may disappoint and trigger a countertrend setback in markets. The economic surprise index has recently weakened (mostly in the US and the UK), the Chinese economy could slowdown later this year and Trump’s promises are being pushed back or diluted. As the equity market is now up 10%, is it time to take profit? The slack in the global inflation figures could persist over the next few weeks, but this should be a temporary move. Indeed, the cyclical macro backdrop remains supportive for equity prices and negative for bonds. Eurozone inflation accelerated to 1.9% YoY in April from 1.5% in March.

At the beginning of October 2016, I wrote an article about the STOXX Supersector Europe 600 Basic Resources Index, and the possibility for this Index to start an intermediate uptrend. From that period we had an increase of about 36% until late February 2017, and now we are in a retracement window that started on February 22th with a drawdown of about -13%.

To better understand the performance of this Supersector it is advisable to take into consideration the historical graph prices of the last twenty-seven years.

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According to latest reports, a slowdown in the housing market and a weakness in the construction industry only worsened amid higher costs. In your point of view, should we expect a further decrease in the UK economy? Why?

Our base case scenario is that we are expecting a slowdown in the UK economy in 2017. If we ask what has been propping the UK economy up since Brexit, the answer would be the consumer spending story; we have seen consumption being fairly resilient since Brexit. On the other hand, we have seen investment taper a little bit less, therefore, what has been driving the UK economy is really consumer spending.

Though, at this point, the outlook looks pretty bleak, especially if we take into account the fact that we have got a squeeze in household consumer incomes, coming from higher fuel prices, higher inflation, and a lack of wage inflation. Real incomes are being squeezed, which in theory leads to weaker consumer spending power. Thus, the channel which has been propping up the UK growth is likely to weaken a little bit going into 2017.