Hi there,

In today's newsletter, central bankers, spearheaded by ECB President Christine Lagarde and Federal Reserve Governor Christopher Waller, are actively challenging market expectations for interest rate cuts, triggering a global selloff in stocks and bonds. This has led to reduced pricing for a potential Fed rate cut in March and delayed expectations for an ECB rate cut, fostering heightened uncertainty and market volatility. Shifting focus, European natural gas prices have experienced a three-day decline, signaling confidence in ample winter supply driven by mild weather, increased nuclear production in France, and robust renewable energy supply. Europe's exit from winter is anticipated with storage facilities around 53-54% full, mitigating concerns of shortages. Concluding the newsletter, economists at HSBC foresee the US Dollar (USD) maintaining strength in the coming months.

Matheus Zani & Daniel Porto

R&D Featured Article

Creating a foreign share class: what GPs need to know

As currency volatility in key growth areas prompts General Partners (GPs) to explore beyond dollarized share classes, foreign share classes emerge as a strategic solution for mitigating currency risk. Despite historical reluctance due to perceived complexity and cost, funds are increasingly adopting foreign share classes to attract international investors and diversify exposure. These classes, denominated in currencies different from the fund's base, offer flexibility and reduce currency exposure for investors. However, the adoption comes with complexities, requiring careful consideration of risks, benefits, costs, and regulatory implications. Technology, exemplified by providers like Deaglo, plays a pivotal role in optimizing hedging strategies, offering visibility, risk analytics, and scenario modeling to navigate the challenges associated with foreign share classes in an evolving market.

2. European Natural Gas Prices Down Amid Mild Winter

European natural gas prices have declined for the third consecutive day, signaling confidence in ample winter supply. Benchmark Dutch futures hit a fresh 5-month low, dropping 4.9% below €29 per megawatt-hour. Mild weather, increased nuclear production in France, and robust renewable supply have reduced gas demand. Europe is expected to exit winter with storage facilities around 53-54% full, ensuring a favorable starting position for summer refills. Additionally, higher gas flows to the UK and northwestern Europe, along with global LNG tanker rerouting due to Houthi attacks, contribute to the downward pressure on prices. Despite some bearish sentiment from investment funds, Europe's gas inventory levels and subdued industrial demand mitigate concerns of shortages.

3. US Dollar Likely to Stay Strong in the Months Ahead

Economists at HSBC predict that the US Dollar (USD) is poised to maintain its strength in the coming months. While they don't anticipate a repeat of the aggressive strengthening seen during the rapid Federal Reserve hiking cycle, they believe the USD still has momentum. The forecast suggests that the USD will likely outperform the Euro (EUR) and the Pound Sterling (GBP) but may underperform against the Japanese Yen (JPY) and certain commodity currencies such as the Canadian Dollar (CAD) and the Australian Dollar (AUD).

Charted Territory

What to look out for today

World Economic Forum - Davos
USD - Retail Sales
USD - Fed’s Barr, Williams & Bowman Speeches
EUR - ECB Lagarde Speech
EUR - German Buba President Nigel Speech
USD - Industrial Production
USD - Fed’s Beige Book

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