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Markets Update November 2022 - Inflation data from the USA let the markets breathe a sigh of relief

Bad Homburg, 11/21/2022
by Dr. Eduard Baitinger
  • Easing price pressure raises hopes for more moderate monetary policy
  • European equities surprise with outperformance
  • Sustained trend reversal not in sight for the time being

The significant decline in the US inflation rate in October has surprised the markets positively and brought price gains for both equities and bonds. Hopes are already spreading that the US Federal Reserve could move to raise the key interest rate less sharply than originally expected at its next meetings if price pressures do indeed ease further in the coming months. The reaction of the markets has clearly shown who are the winners and who are the losers of a less tight interest rate policy by the Fed: On the equity side, valuation-sensitive segments such as technology and growth stocks, which previously suffered particularly badly from the restrictive monetary policy, are clearly at an advantage. On the bond side, bonds with long residual maturities are benefiting disproportionately from an incipient easing in the inflation trend. The clear loser, on the other hand, is the US dollar. In recent months, the Fed's interest rate hikes, which were very significant by international standards, have led to a strong overvaluation, so that even the expectation of a less aggressive interest rate policy has triggered noticeable price losses.

Glimmer of hope for European equities

European equities have been the clear outperformers in recent weeks. Very low valuation levels have recently attracted "bargain hunters". In addition, the probability is increasing that the ECB will have to end its monetary tightening course much earlier than expected due to weak economic data. The noticeable decline in gas prices is also benefiting European companies. If China also eases its zero-covid policy and thus the economy picks up again, this would additionally benefit the export-oriented industry in Europe. Despite the many positive signals, professional investors should not assume that the recent strong performance will simply continue. The issue of secure energy supply will continue to preoccupy the economy next year, as Russian gas will no longer be available in 2023.

Fundamentally, the global fundamental environment remains weak. Inflationary pressures should therefore continue to ease in the short to medium term, also due to statistical base effects. However, this alone is not enough for a trend reversal on the markets. After all, it should not be overlooked that global corporate profits are still in a downward cycle. Further earnings disappointments can be expected by early 2023 at the latest, when the reporting season for the past quarter begins. Therefore, professional investors should weight defensive equity segments prominently in asset allocation.


About Dr. Eduard Baitinger

Dr. Eduard Baitinger has been Head of Asset Allocation in the FERI Group since 2015. He is responsible for quantitative asset allocation at FERI Trust, where he also manages and coordinates numerous research projects. In close coordination with the FERI Board of Directors and Chief Investment Officer, Dr. Heinz-Werner Rapp, he also represents the investment strategy of the FERI Group and its communication to clients and customers of FERI.

Before joining FERI, he was a research assistant at the University of Bremen and financial analyst for an asset manager. In 2010 he completed his studies at the University of Bremen, accompanied by a stay abroad in New York, as a graduate economist. In 2014, Eduard Baitinger received his doctorate with distinction on new approaches to quantitative asset management. Dr. Baitinger publishes regularly in academic journals and acts as academic reviewer.

About FERI

Founded in 1987 and headquartered in Bad Homburg, Germany, the FERI Group has developed into one of the leading investment houses in the German-speaking area. FERI offers tailor-made solutions for institutional investors, family assets and trusts in the following areas:

The FERI Cognitive Finance Institute was formed in 2016. It is the strategic research centre and creative think tank of the FERI Group. The Institute focuses on innovative analyses and the development of methods for long-term oriented economic and capital market research. 

FERI and MLP currently manage assets of about EUR 55 billion in the Group, including round about EUR 15 billion in alternative investments. The FERI Group is headquartered in Bad Homburg and has locations in Dusseldorf, Hamburg, Luxembourg, Munich, Vienna and Zurich.



Media relations contact

Katja Liese von Wangenheim

Member of the Management Board

Head of Press & Communications

T +49 (0) 6172 916-3192

F +49 (0) 6172 916-1192

presse@feri.de

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Eduard Baitinger