• Liz Truss resigns becoming the shortest serving prime minister in UK history
  • Mega-cap revaluation in US

Financial market price changes were positive but volatile during October except emerging markets which were negative. The main factors which effected positive results in developed markets were hopes that we already reached the inflation peak, and the US Federal Reserve Bank will become less hawkish. The US S&P 500 index (S&P 500 Total Return EUR Index), which represents major 500 US companies increased by 7% during the month. Developed markets (MSCI World Total Return EUR Index) increased by 6.24%. Emerging markets (MSCI Emerging Markets Daily Net Total Return EUR Index) generated 3.96% negative return.

The Bank of England keeps pace with other main central banks by increasing interest rates. Together with restrictive monetary policy, which is mainly directed to fight against inflation, UK central bank had to take an emergency action to prevent financial markets from turning into an economic crash. Central Bank initiated strictly time limited gilt purchasing program which could bring stability to  UK’s credit market. Bank of England emphasized that this emergency market intervention is temporary and it is in not a form of quantitative-easing bond buying, which is a monetary policy tool. The turmoil in credit market is not the only black cloud in the UK sky, later in the month UK prime minister Liz Truss made the statement that she resigns. She became the shortest serving UK prime minister in history by staying in the cabinet only for 45 days. These political disturbances negatively effected credit markets and GBP exchange rate. After few days of debates Rishi Sunak was announced to become Britain’s next prime minister. This message was welcomed by the market and GBP restored some value against USD.

GBP/USD Currency exchange rate

Source: Bloomberg L.P

On the other side of the Atlantic Ocean in the United States of America, the announcement of companies quarterly results gained momentum. Markets faced price revaluation after the announcement of results of mega-cap companies like Microsoft, Meta and Amazon which immediately lost between 10% to 25% of company’s value. The misses of results and drastic revaluation of these companies, negatively affected major market indices, because these mega-cap companies are the biggest constituents of the major market indices.

November month will be quite interesting too, because market participants were waiting next FED meeting and monetary decision. European Central Bank during the meeting at the end of October increased three major interest rates: the interest rate on the main refinancing operations, the interest rates on the marginal lending facility and the deposit facility by 0.75% to 2.00%, 2.25% and 1.50% respectively and indicating further rate hikes if needed.

“House view” update

Luminor Investment management team decided to maintain lowered risk allocation budget and higher exposure to defensive sectors (utilities, energy, and consumer staples). High uncertainty about possible consequences of the war in Ukraine, tightening monetary policy, high volatility in the markets and slowed economic growth still warrant such decision.

Luminor House view

DISCLAIMER

Warnings

  • This Marketing Communication is not considered investment research and has not been prepared in accordance with standards applicable to independent investment research.
  • This Marketing Communication does not limit or prohibit the bank or any of its employees from dealing prior to its dissemination.

Origin of the Marketing Communication

This Marketing Communication originates from the Portfolio Management unit (hereinafter referred to as PMU) – a division of Luminor Bank AS (reg. No 11315936, with registered address at Liivalaia 45, 10145, Tallinn, Republic of Estonia, represented within the Republic of Latvia by Luminor Bank AS Latvian branch, reg. No 40203154352, address: Skanstes iela 12, LV-1013, Riga, hereinafter - Luminor). PMU is involved in the provision of discretionary portfolio management services to Luminor clients.

Supervisory authority

As a credit institution Luminor is subject to supervision by the Latvian Financial Supervisory Authority (Finanšu un kapitāla tirgus komisija). Additionally, Luminor is subject to supervision by the European Central Bank (ECB), which undertakes such supervision within the Single Supervisory Mechanism (SSM), which consists of the ECB and the national responsible authorities (Council Regulation (EU) No 1024/2013 - SSM Regulation). Unless set out herein explicitly otherwise, references to legal norms refer to norms enacted by the Republic of Latvia.

Content and source of the publication

This Marketing Communication has been prepared by PMU for information purposes. Luminor will not consider recipients of this Communication as its clients and accepts no liability for use by them of the contents, which may not be suitable for their personal use.

Opinions of PMU may deviate from recommendations or opinions presented by the Luminor Markets unit. The reason may typically be the result of differing investment horizons, using specific methodologies, taking into consideration personal circumstances, applying a specific risk assessment, portfolio considerations or other factors. Opinions, price targets and calculations are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation, interest rate forecasts, currency forecasts and investment horizon.

Luminor uses public sources that it believes to be reliable. However, Luminor has not performed independent verification. Luminor makes no guarantee, representation or warranty as to their accuracy or completeness. All investments entail a risk and may result in both profits and losses.

This Marketing Communication constitutes neither a solicitation of an offer nor a prospectus in the sense of applicable laws. An investment decision in respect of a financial instrument, a financial product or an investment (all hereinafter “product”) must be made on the basis of an approved, published prospectus or the complete documentation for such a product in question, and not on the basis of this document. Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a substitute for the necessary advice on the purchase or sale of a financial instrument, a financial product.

No Advice

This Marketing Communication has been prepared by Luminor PMU as general information and shall not be construed as the sole basis for an investment decision. It is not intended as a personal recommendation of particular financial instruments or strategies. Luminor accepts no liability for the use of the Marketing Communication content by its recipients.

If this Marketing Communication contains recommendations, those recommendations shall not be considered as an objective or independent explanation of the matters discussed herein. This document does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the persons who receive it. The securities or other financial instruments discussed herein may not be suitable for all investors. The investor bears all risk of loss in connection with an investment. Luminor recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors if they believe it necessary.

The information contained in this document also does not constitute advice on the tax consequences of making any particular investment decision. The estimates of costs and charges related to specific investment products are not provided therein. Each investor shall make his/her own appraisal of the tax and other financial advantages and disadvantages of his/her investment.
 
Risk information

The risk of investing in certain financial instruments including those mentioned in this document, is generally high, as their market value is exposed to many different factors. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. When investing in individual financial instruments the investor may lose all or part of their investments.

Important disclosures of risks regarding investment products and investment services are available here

Conflicts of interest

To avoid occurrence of potential conflicts of interest as well as to manage personal account dealing and / or insider trading, the employees of Luminor are subject to internal rules on sound ethical conduct, management of inside information, handling of unpublished research material and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. Luminor’s Remuneration Policy establishes no link between revenues from capital markets activity and remuneration of individual employees.

The availability of this Marketing Communication is not associated with the amount of executed transactions or volume thereof.

This material has been prepared following the Luminor Conflict of Interest Policy, which may be viewed here
 
Distribution

This Marketing Communication may not be transmitted to, or distributed within, the United States of America or Canada or their respective territories or possessions, nor may it be distributed to any U.S. person or any person resident in Canada. The document may not be duplicated, reproduced and(or) distributed without Luminor’s prior written consent.