Last week: new All Time Highs (US indices & BTC) higher USD, Oil & Silver prices; Bond yields higher across the board
WEEKLY TRENDS
WEEKLY TRENDS
- A new set of US tariffs hit a few countries last week (EU & Mexico threatened at 30%, Canada 35%, Brazil 50%, South Africa 30%, while S. Korea, Japan, Kazakhstan, Malaysia all at 25%) pushing Bond yields up
- June FOMC (FED meeting) minutes showed disagreement among members, however the US equity indices continued to perform and hit ATH last week, so did the BTC at $118k
- GS and BofA revised up their SP500 year-end forecast at 6600 and 6300 respectively. Meanwhile, Nvidia reached a record $4trn market cap
- President Trump imposed a 50% tariff on imported copper, he is also preparing a major announcement on Russian sanctions (planned for Monday) which boosted Oil price on Friday
- The PBOC (China) is looking at a major stimulus package worth $200bn to counter the US tariffs
- This coming week, the focus will be the start of the quarterly US corporate earnings releases (major banks).
MARKETS
Equities
Important weekly performances:
Delta Airlines (+11%, on premium clients up), Air France (+10%, looking to buy Portuguese TAP), BMW (+10%, on strong outlook)
WPP (-20%, on poor outlook)
Analysts:
Generali (JPM ‘o/w’ target €37)
Rates
US curve (2-10 years) steepening slightly higher at 53bps (Bond yields higher across the board, especially the longer end)
HY corporate spreads lower at 290bps (US & EU)
Commodities
Oil price higher (+3%) new US sanctions on Russia expected on Monday
Copper price higher (+10%) for the US Copper Futures after new US tariff of 50% will be applied on August 1st
Silver price higher (+4%) or +33% YTD at $39 it’s the highest since 2011 (NB : higher lease rates at 4.5% vs 0% normally)
Crypto
ETH is outperforming BTC for the 3rd week in a row, while BTC hit an ATH at $118k last week. NB : Tether (stablecoin) has its own vault in Switzerland with $8bn worth of Gold there.
Under the watch
S&P 500 Golden cross (50 day MA crossed up the 200 day MA) last time it did so, was in Feb 2023
US Core PCE (GS: the announced US tariffs would have boosted the US Core PCE inflation by 1% had they been fully passed onto consumers)
Nota Bene
US Money Market funds hit a new ATH at $7.4trn
The USD is still the World’s reserve currency (representing 50% of Swift payments, 60% of the FX reserves, 45% of the cross border loans)
CALENDAR
Upcoming earnings releases :
US JPM, Wells Fargo, BlackRock, Citi, BoNY (15 July)
Upcoming CB meetings :
ECB (24 July)
FOMC/FED (30 July)
BOJ (31 July)
BOE (7 Aug)
WHAT ANALYSTS SAY
DPAM, 11 July 2025
Author: Aurelien Duval, Equity Fund Manager
Hedging currency risk is often a bad idea in the long term for equity portfolios.
For investors whose reference currency is the euro, it is normal to be concerned about exchange rates, especially when investing in dollar-denominated assets. Their most frequently asked question is: what happens when the dollar weakens? Does this erode the performance of US equities? Not necessarily. History shows that the opposite tends to be true.
Short-term setback, long-term gains
The impact of currency movements on portfolios generally occurs in two stages. First, there are immediate repercussions: a weaker dollar translates into a decline in the euro value of dollar-denominated assets. Then, in a second stage, the value of the portfolio is affected by the delayed impact of profits. US companies that earn profits in foreign currencies see their dollar earnings increase (due to the decline in the dollar). This leads to upward revisions in earnings and, potentially, higher share prices. Over time, this phenomenon often offsets the initial decline experienced by investors whose reference currency is the euro. With many S&P 500 companies generating around 40% of their revenue outside the US, this international exposure provides a ‘natural’ hedge against currency fluctuations.
Fall in the dollar, rise in shares
Let us examine various periods during which the dollar weakened significantly (by more than 15%) and see how equities performed:
From 1985 to September 1987 (Plaza Accord): the dollar lost nearly 40% of its value. However, the S&P 500 more than doubled during this period. The weak dollar benefited exporters, contributing to higher stock prices.
From 2003 to 2007: the dollar fell by around 30% against the euro. Despite this weakening, the S&P 500's performance in dollar terms was nearly 80%. Investors whose reference currency was the euro therefore made capital gains, as the rise in share prices more than offset foreign exchange losses.
2017: the dollar lost around 15% while the S&P 500 rose 21% in dollar terms. Thus, despite their exchange rate losses, euro-based investors recorded positive results. These examples confirm once again that equity markets can (and often do) offset exchange rate losses, especially when companies have international exposure.
European stocks: the mirror effect
The same logic applies in reverse. Approximately 60% of the turnover of Stoxx 600 companies is generated abroad. A weaker euro benefits European exporters as it improves their competitiveness and increases the euro value of their foreign sales. For example, many companies in the luxury goods and aerospace sectors generate a significant portion of their revenue in dollars. When the dollar is strong, these companies' revenues increase. Conversely, they decrease when the euro strengthens. However, over time, share prices tend to adjust.
When the euro weakens, these companies see an increase in their profits in euros. For example, during the sharp decline of the euro in 2014-2015 (-25% against the US dollar), corporate profits and European indices rose significantly, as foreign sales became more profitable in euros.
Do not overestimate the exchange rate risk
Both academic studies and figures show that there is no systematic negative correlation between currency fluctuations and stock performance. Factors such as earnings growth and economic cycles have a much greater impact. Currency fluctuations tend to cancel each other out over time, particularly for portfolios invested in internationally diversified companies.
For equities, hedging against currency risk can reduce long-term performance and adds unnecessary complexity. However, while multinationals generally benefit from self-hedging, some companies face very real currency risks, particularly when their costs and revenues are not in the same currency. In such cases, active management plays a decisive role. Take the example of luxury goods companies, which often manufacture in Europe (meaning their costs are in euros or Swiss francs) but sell in the United States (meaning their revenues are in dollars): if the dollar weakens, their margins will be squeezed unless they are able to raise their prices.
Atlas Copco, a Swedish industrial group, faces this type of risk as its costs are in Europe while a significant portion of its sales are in the United States. When the dollar falls, the company's profits expressed in Swedish kronor or euros are likely to decline. Fundamental analysis allows us to closely monitor these imbalance factors. At the beginning of the year, we anticipated currency fluctuations and the possibility of new customs duties, which enabled us to adjust our exposures accordingly. All of this demonstrates the value of active management, as not all international players are equally protected against currency risk.
Listing location and exposure of the business: two distinct elements
In a globalised economy, a company's listing location has little to do with its geographical location. For example, MercadoLibre is listed on the Nasdaq, even though all of its business is conducted in Latin America and none of its production costs or revenues are in dollars. Linde moved its main listing from Germany to the United States, even though the company is still active internationally. Although this change has not affected its fundamentals in any way, it could now be considered an American company rather than a European one. These examples show that exposure in terms of economic activity is much more important than the place of listing. Investors should therefore focus their attention on the currencies in which a company generates its profits and incurs its expenses rather than on the stock exchange on which its shares are traded.
Beware of the tree that hides the forest
Currencies can cause short-term fluctuations in the value of an equity portfolio, but its long-term performance depends primarily on the fundamentals of the companies in which it is invested. Over time, multinational companies generally adapt well to exchange rate fluctuations because the international nature of their business provides them with ‘natural’ hedging. Historical data shows that periods of pronounced dollar weakness often coincided with periods of strong performance for US equities, which is a plus for investors who are diversified internationally and patient enough to wait it out.
For investors whose reference currency is the euro, a weaker dollar is rarely a good reason to exit international equities. In many cases, it is even a positive factor for earnings and stock market valuations. Provided that the choice of companies and analysis are relevant, investing in equities remains one of the most efficient ways to take advantage of a multi-currency world.
Candriam, 8 July 2025
Author: Charudatta Shende, Head of Client Portfolio Management
On the surface, things seem calm, but credit could soon be overtaken by its fundamentals.
The United States has doubled certain tariffs, particularly on steel and aluminium. Further increases are expected. These measures are part of a broader fiscal strategy, some provisions of which may directly impact European companies. At the same time, signs of an economic slowdown are multiplying in the United States. If fiscal measures do not translate into a tangible recovery, a recession could weaken IG companies.
High Yield: The First Cracks
The euro high-yield (HY) segment is beginning to crack. Three major defaults in May, including that of SFR, mark a turning point. Further maturity extensions followed, signalling a clear change in the fundamental risk profile of the lowest-rated credits. In the United States, defaults are accelerating. This reflects difficult economic conditions, rising borrowing costs and increasing pressure on margins. This deterioration in fundamentals could weaken current technical support. A significant default or a series of downgrades could trigger a chain reaction: capital withdrawals and widening spreads.
The importance of in-depth issuer analysis
When fundamentals falter, technical factors can follow suit. The SFR default showed that a single event is enough to reignite tensions across the entire market. In a tense market, where returns are scarce and risk premiums are artificially low, sentiment can quickly turn. Downgrades – even of small- or mid-cap issuers – can trigger automatic sales by passive funds, leading to chain reactions. In this context, the best weapon remains analysis. Investors should look for companies with sustainable profits that are able to control their costs and refinance their debt without stress. The most vulnerable? Those exposed to economic conditions, dependent on exports or with fragile balance sheets. Conversely, companies active in defensive sectors, with stable demand and healthy finances, should retain good market access and investor confidence.
Towards a new credit cycle
Credit remains attractive for a number of reasons: high yields, technical support and growing investor interest. The IG segment has emerged stronger, with fundamentals that remain robust and a genuine ability to withstand shocks. For some, it is even beginning to look like a credible alternative to European sovereign debt. The HY segment, on the other hand, remains more fragile. The slightest deterioration could have amplified effects. For both segments, everything will depend on the persistence and intensity of external shocks. So far, the market is holding up. But the real test may still be ahead of us. A slow but steady deterioration in fundamentals, if left unchecked, could mark the beginning of a new market phase.
In this context, the era of indiscriminate yield hunting is over. What lies ahead is a market that will reward rigour, selectivity and unwavering attention to corporate solvency.
Equities
Important weekly performances:
Delta Airlines (+11%, on premium clients up), Air France (+10%, looking to buy Portuguese TAP), BMW (+10%, on strong outlook)
WPP (-20%, on poor outlook)
Analysts:
Generali (JPM ‘o/w’ target €37)
Rates
US curve (2-10 years) steepening slightly higher at 53bps (Bond yields higher across the board, especially the longer end)
HY corporate spreads lower at 290bps (US & EU)
Commodities
Oil price higher (+3%) new US sanctions on Russia expected on Monday
Copper price higher (+10%) for the US Copper Futures after new US tariff of 50% will be applied on August 1st
Silver price higher (+4%) or +33% YTD at $39 it’s the highest since 2011 (NB : higher lease rates at 4.5% vs 0% normally)
Crypto
ETH is outperforming BTC for the 3rd week in a row, while BTC hit an ATH at $118k last week. NB : Tether (stablecoin) has its own vault in Switzerland with $8bn worth of Gold there.
Under the watch
S&P 500 Golden cross (50 day MA crossed up the 200 day MA) last time it did so, was in Feb 2023
US Core PCE (GS: the announced US tariffs would have boosted the US Core PCE inflation by 1% had they been fully passed onto consumers)
Nota Bene
US Money Market funds hit a new ATH at $7.4trn
The USD is still the World’s reserve currency (representing 50% of Swift payments, 60% of the FX reserves, 45% of the cross border loans)
CALENDAR
Upcoming earnings releases :
US JPM, Wells Fargo, BlackRock, Citi, BoNY (15 July)
Upcoming CB meetings :
ECB (24 July)
FOMC/FED (30 July)
BOJ (31 July)
BOE (7 Aug)
WHAT ANALYSTS SAY
- DPAM: Concerned about the week dollar?
- Candriam: Credit in the spotlight
DPAM, 11 July 2025
Author: Aurelien Duval, Equity Fund Manager
Hedging currency risk is often a bad idea in the long term for equity portfolios.
For investors whose reference currency is the euro, it is normal to be concerned about exchange rates, especially when investing in dollar-denominated assets. Their most frequently asked question is: what happens when the dollar weakens? Does this erode the performance of US equities? Not necessarily. History shows that the opposite tends to be true.
Short-term setback, long-term gains
The impact of currency movements on portfolios generally occurs in two stages. First, there are immediate repercussions: a weaker dollar translates into a decline in the euro value of dollar-denominated assets. Then, in a second stage, the value of the portfolio is affected by the delayed impact of profits. US companies that earn profits in foreign currencies see their dollar earnings increase (due to the decline in the dollar). This leads to upward revisions in earnings and, potentially, higher share prices. Over time, this phenomenon often offsets the initial decline experienced by investors whose reference currency is the euro. With many S&P 500 companies generating around 40% of their revenue outside the US, this international exposure provides a ‘natural’ hedge against currency fluctuations.
Fall in the dollar, rise in shares
Let us examine various periods during which the dollar weakened significantly (by more than 15%) and see how equities performed:
From 1985 to September 1987 (Plaza Accord): the dollar lost nearly 40% of its value. However, the S&P 500 more than doubled during this period. The weak dollar benefited exporters, contributing to higher stock prices.
From 2003 to 2007: the dollar fell by around 30% against the euro. Despite this weakening, the S&P 500's performance in dollar terms was nearly 80%. Investors whose reference currency was the euro therefore made capital gains, as the rise in share prices more than offset foreign exchange losses.
2017: the dollar lost around 15% while the S&P 500 rose 21% in dollar terms. Thus, despite their exchange rate losses, euro-based investors recorded positive results. These examples confirm once again that equity markets can (and often do) offset exchange rate losses, especially when companies have international exposure.
European stocks: the mirror effect
The same logic applies in reverse. Approximately 60% of the turnover of Stoxx 600 companies is generated abroad. A weaker euro benefits European exporters as it improves their competitiveness and increases the euro value of their foreign sales. For example, many companies in the luxury goods and aerospace sectors generate a significant portion of their revenue in dollars. When the dollar is strong, these companies' revenues increase. Conversely, they decrease when the euro strengthens. However, over time, share prices tend to adjust.
When the euro weakens, these companies see an increase in their profits in euros. For example, during the sharp decline of the euro in 2014-2015 (-25% against the US dollar), corporate profits and European indices rose significantly, as foreign sales became more profitable in euros.
Do not overestimate the exchange rate risk
Both academic studies and figures show that there is no systematic negative correlation between currency fluctuations and stock performance. Factors such as earnings growth and economic cycles have a much greater impact. Currency fluctuations tend to cancel each other out over time, particularly for portfolios invested in internationally diversified companies.
For equities, hedging against currency risk can reduce long-term performance and adds unnecessary complexity. However, while multinationals generally benefit from self-hedging, some companies face very real currency risks, particularly when their costs and revenues are not in the same currency. In such cases, active management plays a decisive role. Take the example of luxury goods companies, which often manufacture in Europe (meaning their costs are in euros or Swiss francs) but sell in the United States (meaning their revenues are in dollars): if the dollar weakens, their margins will be squeezed unless they are able to raise their prices.
Atlas Copco, a Swedish industrial group, faces this type of risk as its costs are in Europe while a significant portion of its sales are in the United States. When the dollar falls, the company's profits expressed in Swedish kronor or euros are likely to decline. Fundamental analysis allows us to closely monitor these imbalance factors. At the beginning of the year, we anticipated currency fluctuations and the possibility of new customs duties, which enabled us to adjust our exposures accordingly. All of this demonstrates the value of active management, as not all international players are equally protected against currency risk.
Listing location and exposure of the business: two distinct elements
In a globalised economy, a company's listing location has little to do with its geographical location. For example, MercadoLibre is listed on the Nasdaq, even though all of its business is conducted in Latin America and none of its production costs or revenues are in dollars. Linde moved its main listing from Germany to the United States, even though the company is still active internationally. Although this change has not affected its fundamentals in any way, it could now be considered an American company rather than a European one. These examples show that exposure in terms of economic activity is much more important than the place of listing. Investors should therefore focus their attention on the currencies in which a company generates its profits and incurs its expenses rather than on the stock exchange on which its shares are traded.
Beware of the tree that hides the forest
Currencies can cause short-term fluctuations in the value of an equity portfolio, but its long-term performance depends primarily on the fundamentals of the companies in which it is invested. Over time, multinational companies generally adapt well to exchange rate fluctuations because the international nature of their business provides them with ‘natural’ hedging. Historical data shows that periods of pronounced dollar weakness often coincided with periods of strong performance for US equities, which is a plus for investors who are diversified internationally and patient enough to wait it out.
For investors whose reference currency is the euro, a weaker dollar is rarely a good reason to exit international equities. In many cases, it is even a positive factor for earnings and stock market valuations. Provided that the choice of companies and analysis are relevant, investing in equities remains one of the most efficient ways to take advantage of a multi-currency world.
Candriam, 8 July 2025
Author: Charudatta Shende, Head of Client Portfolio Management
On the surface, things seem calm, but credit could soon be overtaken by its fundamentals.
The United States has doubled certain tariffs, particularly on steel and aluminium. Further increases are expected. These measures are part of a broader fiscal strategy, some provisions of which may directly impact European companies. At the same time, signs of an economic slowdown are multiplying in the United States. If fiscal measures do not translate into a tangible recovery, a recession could weaken IG companies.
High Yield: The First Cracks
The euro high-yield (HY) segment is beginning to crack. Three major defaults in May, including that of SFR, mark a turning point. Further maturity extensions followed, signalling a clear change in the fundamental risk profile of the lowest-rated credits. In the United States, defaults are accelerating. This reflects difficult economic conditions, rising borrowing costs and increasing pressure on margins. This deterioration in fundamentals could weaken current technical support. A significant default or a series of downgrades could trigger a chain reaction: capital withdrawals and widening spreads.
The importance of in-depth issuer analysis
When fundamentals falter, technical factors can follow suit. The SFR default showed that a single event is enough to reignite tensions across the entire market. In a tense market, where returns are scarce and risk premiums are artificially low, sentiment can quickly turn. Downgrades – even of small- or mid-cap issuers – can trigger automatic sales by passive funds, leading to chain reactions. In this context, the best weapon remains analysis. Investors should look for companies with sustainable profits that are able to control their costs and refinance their debt without stress. The most vulnerable? Those exposed to economic conditions, dependent on exports or with fragile balance sheets. Conversely, companies active in defensive sectors, with stable demand and healthy finances, should retain good market access and investor confidence.
Towards a new credit cycle
Credit remains attractive for a number of reasons: high yields, technical support and growing investor interest. The IG segment has emerged stronger, with fundamentals that remain robust and a genuine ability to withstand shocks. For some, it is even beginning to look like a credible alternative to European sovereign debt. The HY segment, on the other hand, remains more fragile. The slightest deterioration could have amplified effects. For both segments, everything will depend on the persistence and intensity of external shocks. So far, the market is holding up. But the real test may still be ahead of us. A slow but steady deterioration in fundamentals, if left unchecked, could mark the beginning of a new market phase.
In this context, the era of indiscriminate yield hunting is over. What lies ahead is a market that will reward rigour, selectivity and unwavering attention to corporate solvency.
Contacts
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research@unibankinvest.am
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