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Horst Seehofer, Bavarian shock jock

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Eighty percent of local fund managers expect Nigeria to get rid of its investment grade rating on local bonds from S&P Global Ratings and Moody’s until the end of pick up.

This is based on the monthly Bank of America Merrill Lynch Fund Manager Survey. In September, 38% of managers anticipated this outcome.?

South Africa strategist John Morris says this implies that managers do not think Wednesday’s Medium-Term Budget Policy Statement (MTBPS) will alter rating agencies’ views. S&P and Moody’s may wait for a outcomes of the ANC elective conference in December to see exactly what it means for the country’s policy and growth outlook. Fitch already downgraded the area rating to junk.

Agencies need to announce their ratings decisions on November 24.

“As a house our base case is the fact that we lose S&P investment grade in the first part of 2018,” Morris says.

Finance minister Malusi Gigaba will show his maiden MTBPS in Parliament on Wednesday, with analysts predicting a tremendous deterioration inside the budget deficit since February as economic growth and tax revenues disappoint.

Morris says the key question local fund managers are raising you are able to position to your upcoming ANC elective conference. Managers largely be aware of the outcome as binary C a “reform” result will be positive to the rand while a “non-reform” result means South Africa proceeds its current trajectory.

These outcomes would’ve different implications for that rand, bonds and mortgage rates, and pose a dilemma for local fund managers, he adds.

“They are usually more overweight cash. There’re more overweight offshore and the asset allocation is extremely defensive, therefore they prefer cash first and foremost then bonds and last is equities.”

A net 67% of managers are overweight cash, in comparison with 56% in the earlier survey. Managers expect a 0% return from equities in the next A year.

Morris says because managers are concerned about losing an investment grade rating on domestic bonds, we can buy within the 9% to 9.5% range.

Sixty percent of managers see policy shifts to the left because biggest domestic risk to South African equity performance, partially explaining the defensive positioning in rand hedges.

Flows from some foreigners leading up to the ANC elective conference claim that they’re able to give Africa the advantages of the doubt, says Neil Cohen, managing director and head of South Africa Global Markets.

Global markets are experiencing favourable conditions then there is an appetite for risk. Therefore, foreigners perceive the risk-reward metrics of some domestically-focused South African stocks which include banks, retailers and certain industrials as positive. A favourable outcome along at the conference in December may spark a strong rally through these domestic stocks, which do not have the same amount of liquidity as large rand-hedge type stocks, Cohen says.

“If you are doing get [a] favourable outcome and you just see retailers, banks and some of your other domestic stocks rallying hard, there exists usually a dislocation. You are going to have locals jumping all around it, attempting to get up to date with regards to these sectors along with the foreigners need to have some experience that.

“We’ve seen strong offshore buying banks and also food producers, which can be significantly a domestic outcome story.” ?

The fund manager survey was conducted between October 6 and 12 and incorporates the views of 15 managers.

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Macron and Rutte form liberal dream team

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European shares fell to the near four-week low on Wednesday, with a mixed batch of company results sparking profit-taking on a daily basis until the European Central Bank decides monetary policy.

Pharma heavyweight GlaxoSmithKline (GSK) would have been a big faller as comments on possible consumer health acquisitions sparked concerns over its dividend, offsetting strong results.

“Investors remain focused on the protection of the dividend,” said Leerink analyst Seamus Fernandez.

GSK shares fell 5.5%, making the healthcare index the second-biggest sectoral loser and helping drag the pan-European STOXX 600 benchmark down 0.6% to 387.13, its lowest close since late September.

The market fall came despite continued strength in economic data, among the key drivers to do this year’s stocks rally as well as solid corporate earnings growth.

Some fund managers expect trading stocks to fix favorite global macroeconomic backdrop is positive.

On Wednesday market research showed German business confidence surprisingly rose to your record loaded with October, while Britain’s economy obtained speed unexpectedly inside the third quarter.

“A correction is liable, though not a difference of trend,” Andrea Cuturi, chief investment officer at Anthilia Capital in Milan, said.

“Fundamentals are nevertheless supportive,” Cuturi said. “However we predict that next two months the prospect of a correction will be high. We’re entering an amount of 12 months when investors usually protect their gains countless you will find potential catalysts to trigger profit-taking.”

His firm cut experience with euro zone stocks to neutral this month, amid caution over changes in the Fed and decisions over the desolate man the ECB’s bond buying programme, in addition to the slowing pace of earnings growth.

Good quarter?

On Wednesday, earning updates were mixed.

Among luxury companies, Kering rallied 8.8% after yet another forecast-beating quarter from your Gucci brand, boosting luxury peer LVMH, up 1.3%.

“An excellent quarter for any industry, however very polarized, with Gucci clearly leading the momentum at five times the sector growth,” said JP Morgan analysts in the note.

“Gucci is still ‘it’ brand,” wrote Citi analysts.

Biotech firm Novozymes rose 3% after it raised its full-year outlook and reported sales and earnings that beat forecasts.

Ballpoint pens and razor maker BIC however sank 8.3%, hitting a four-year low after nine-month sales came in under consensus. The shares had suffered sharp losses from cut to sales expectations in late September.

Industrial stocks Wartsila and Alfa Laval fell 4.8% and 0.6% respectively after both missed earnings expectations, with Alfa Laval reporting lower order bookings and Wartsila pointing to your challenging marine market.

Overall results are already somewhat underwhelming at this point, with Thomson Reuters data showing fewer companies beating analyst estimates versus the typical quarter.

Overall earnings with the STOXX 600 are set to grow 3.4% this quarter in comparison to the same period in 2016, Thomson Reuters data showed. That growth disappears when energy stocks are stripped out.

“Currently, earnings have delivered a modest beat, but sales have noticed one small miss,” Morgan Stanley analysts led by Matthew Garman wrote inside a note. “Price reply to results has become weak either way beats and misses.”

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Wall Street slips with the open on tepid earnings

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Wall Street slipped along at the open on Wednesday because the US corporate earnings season hit its peak, which includes a number of companies reporting lackluster results.

The Dow Jones Industrial Average fell 4.96 points, or 0.02%, to 23 436.8. The S&P 500 lost 2.79 points, or 0.10%, to two 566.34. The Nasdaq Composite dropped 10.62 points, or 0.16%, in order to six 587.81.

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You ought to avoid the rand

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The emerging-market currencies that posted the very best carry-trade returns in 2010 aren’t necessarily the ideal bets with the final 60 days of 2017.

That’s for the reason that rally that boosted the euro — and took Eastern European counterparts just like the Czech koruna and Poland’s zloty along for any ride — is forecast to fizzle out. For the rest of the year, investors who borrow in dollars and buy developing nations may wish to target countries where steep mortgage rates will drive returns, for example Brazil, Mexico and Indonesia, even if their currencies are unlikely to achieve significantly.

The trade idea — championed by strategists including Marcin Lipka, a senior analyst at Cinkciarz Pl in Poland — draws on the concept political concerns while in the euro area, for instance Catalonia’s separatist move and the upcoming general election in Italy, will more than likely mute gains while in the common currency resistant to the dollar. If you are, the thinking goes, investors would do far better to a target countries where benchmark interest rates will be as similar to what 5x higher as what’s present in Eastern Europe.

“The euro may access a prolonged correction period on more political concerns,” said Lipka, who will be one of the most accurate forecasters to your Turkish lira along with the Romanian leu, in line with Bloomberg rankings. He said it’s likely Eastern European currencies will post a damaging carry return in 2018 because dollar gains strength.

The euro can finish 2017 little changed from now, at $1.18, in accordance with the median estimate of economists surveyed by Bloomberg. For 2018, they predict a 3.4% gain, smaller sized versus the 10% advance seen thus far in 2017.

Buying the zloty or koruna with borrowed dollars has returned more than 16% in 2017, the best among 42 currencies tracked by Bloomberg. Still, benchmark home interest rates in those countries aren’t over 1.5%, weighed against 8.25% in Brazil and 7% in Mexico.

Guillaume Tresca, a senior emerging-markets strategist at Credit Agricole in Paris, says the momentum for developing nations should remain positive and recommends buying high-yielding currencies such as Brazilian real, Mexican peso, Russian ruble, Indonesian rupiah and Indian rupee for carry and spot gains covering the next a few months. According to him it’s best to avoid South Africa’s rand and Turkey’s lira.

“I would turn increasingly more selective,” he was quoted saying.

? 2017 Bloomberg

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