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Comments on Prior Week’s Market Activity OCT 1 SEP 24 Week Ago 4 Weeks YTD
10-Year
However, bonds moved in the opposite direction, with yields falling again, Canada 2.77 2.87 (10) (18) (84)
United States 2.51 2.61 (10) (19) (133)
although they remain above their August lows Japan 0.96 1.01 (5) (19) (34)
Germany 2.28 2.34 (6) (8) (111)
United Kingdom 2.98 3.04 (6) (3) (104)
Australia 5.07 5.05 2 23 (58)
Comodities % Change
Dow Jones UBS Cmdty Index 289 284 1.8 5.8 1.9
… which is suggested by the Loonie’s relative underperformance in the Oil (Generic Contract) 81.15 76.49 6.1 8.8 2.3
Natural Gas (Generic) 3.83 4.01 (4.5) (2.8) (31.3)
face of strong commodity fundamentals Gold (Spot) 1,318 1,296 1.7 5.7 20.1
Equities % Change
Equities • Valuations appear in line with recent decades’ experience for periods of low interest • Maintain tactical underweight • Favour more highly hedged
rates and inflation expectations to broad equity asset class managers
• The first half of 2010 saw companies deliver strong earnings and generally positive pending improvement in • Favour bottom-up managers
guidance; Q3 earnings expectations continue to rise valuations and renewed who concentrate on stock or
• Recent softness in macroeconomic indicators, particularly in the US and China, has upturn in macro indicators sector selection and
given way to a firmer flow of data, supporting the emerging consensus view that the • Favour quality factors in long emphasize quality factors
world economy will deliver moderate but sustained growth , with isolated pockets of exposure
weakness remaining contained
• Markets may remain rangebound (eg, with the S&P 500 between 1050 and 1200)
until conflicting currents resolve themselves
Fixed Income • Low yields make government bonds unattractive in anything other than a return to • Keep duration short despite • Directional credit may still
panic or an outright deflationary scenario steep curve as outright yield provide some opportunity
• Consensus seems to be solidifying around a view that rates will remain “lower, for offers limited compensation • Relative value credit
longer” than markets seemed to believe in Q1 and Q2 for inflation / interest rate risk opportunities still exist but
• Investment grade credit spreads are modestly attractive but further narrowing will be • Favour higher-quality tail risks could be significant
much less dramatic corporate and high yield • Favour lower-net strategies
• High yield and bank loans are moderately attractive but could widen again if issues
concern about a “double dip” increases
• As with equities, the rally has been strongest among lowest-quality names
Currency • USD: remains the key “safe haven” despite weak long-term macro fundamentals • For CAD accounts, hedge • Hedge currency in HF
and continued low rates USD, EUR and JPY exposure investments
• CAD: trading in line with commodities and risk appetite – long-term fundamentals • For USD accounts, leave • Consider macro / FX
are relatively positive risk-asset exposure strategies once USD pairs
• Euro has rallied but is unlikely to regain historic highs while sovereign risk concerns unhedged begin to offer lower
persist correlation
• Yen: continues to benefit from “safe haven” status despite long-term macro issues
• Emerging market currencies: trade in line with broad risk appetite; long-term
fundamentals supportive, particularly in a global recovery scenario
Commodities • Energy: oil has generally ground higher, oscillating between lows in the $70s and • Volatility and risk of economic • Continue to favour managers
gradually rising highs in the $80s. Natural gas once again gives hints of stabilizing growth disappointment who emphasize non-
• Precious metals: momentum has faded in recent weeks but macro environment (low makes direct exposure directional exposure to
rates and heightened risk perception) remains favourable questionable for buy-and-hold commodities (until supply /
• Base metals appear range-bound as markets assess prospects for Chinese and investors demand factors appear to
emerging markets growth. Copper appears reluctant to move far from $3 (for now) • Play selectively through outweigh short-term macro /
• Agriculturals have been boosted in recent weeks by supply concerns equities headline risk)
Disclaimer: The “Artemis Weekly Market View” is based on information which is believed to be accurate but cannot be guaranteed. Comments may contain forward-looking statements; actual results may differ materially. This document should
not be construed as advice; investors should consult their own advisors. This document does not constitute an offer to buy or sell any securities. Copyright Artemis Investment Management 2010