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Hi all, an interesting week for markets as global stock indices finished the week strong despite some selloffs and hawkish central bank policy.

***S&P 500 this week, Source: TradingView***

In this week’s market wrap, I’ll be touching upon the following hot topics:

- Developments in the Russia-Ukraine War

- Liz Truss and UK Inflation

- ECB Monetary Policy

- Kim Kardashian (wait, what?)

Enjoy!

Russia Turns Off the Tap

Gazprom has stopped gas flows to European nations, exacerbating the EU energy crisis and causing the Euro to drop to fresh lows against the US Dollar, hitting 0.988. This move came shortly after G7 countries announced their plans to impose price caps on Russian gas in order to put a dent in Putin’s war plans against Ukraine. Russia has stated that the halt in gas flows was a result of technical issues, but various European leaders have accused Russia of weaponising its control over the oil supply in response to the sanctions.

Truss the Process?

Liz Truss replaced Boris Johnson as the UK’s Prime Minister this Tuesday, securing 21,000 more votes than Rishi Sunak. Given the current energy crisis which could see household gas bills rise by 80%, she proposed a £150bn aid package that would cap energy bills at £2,500 per year. While this may be good news for consumers, this proposition has sparked a conflict between Truss and the BOE, as the BOE believes this would amplify UK inflation, forcing them to continue rate hikes in the future.

ECB Hawks Sharpen Their Talons

This Thursday, the ECB increased interest rates by 75 basis points, bringing the bank’s deposit rate to 0.75%. This is a change from their last monetary policy decision, where they increased interest rates by 50 basis points. Despite prospects of a Eurozone recession, Christine Lagarde has communicated that there would be more rate hikes to come with the goal of cooling the Eurozone following the last CPI reading of 9.1%.

***Nuclear energy consumption in Japan 1998-2021, Source: Statista***

Keeping Up with The Kardashians

Kim Kardashian has partnered up with Jay Sammons (an ex-Carlisle Group executive) to launch SKKY, a private equity firm whose main business focus will be on the consumer, luxury, and media sectors. Kim isn’t the first celebrity to shift focus onto the PE world, as A-list figures such as Leonardo DiCaprio and Ashton Kutcher have previously made private investments of their own.

Thanks for reading my first article and have a great week!

Muhammad

Quantitative Finance - What is it?

Hello Everyone, I’m Giuseppe, one of The Spark’s newest team members! I aim to bring you content related to quantitative finance and coding so I hope you enjoy it!

What is Quantitative Finance?

To provide an exciting answer, I would like to focus your attention on why we use quantitative processes. The world around us is full of data; all the pieces of information we exchange daily is recorded, stored, and processed to gain insights into our habits, customer journey, or even our healthcare record!

As you can see, the answer to the above question seems obvious: to manage this huge amount of data, companies need experts who can extract insights from this data. In the last ten years, big corporations have hired thousands of people specialising in this field to manage the rapidly increasing quantity of data.

Today’s article will focus on how companies exploit the data produced to analyse the finance industry.

What does a Quantitative Analyst (Quant) do?

These experts come from academic backgrounds like Physics, Maths, Computer Science, or Finance. Their knowledge is focused on subjects such as:

Probability
Statistics
Coding
Machine Learning

To be precise, a quant analyst is someone who manages, models, and manipulates data through computer programming methods in order to produce predictive results. This allows companies to gain valuable insights into their customers buying habits, or allows hedge funds to gain an advantage over competitors as they predict price moves before they occur.

One example of how quant analysts use data is through ‘time series’ analysis. So let me explain how this works.

Even if our evolution seems ever-changing, history shows that our behaviours are often cyclical, i.e. behaviours tend to repeat over time (especially in financial markets). One great comparison is the dot-com bubble and 2021 - the rise of internet companies led to a bubble in 2000, just as the rise of renewable energy and crypto stocks did in 2021!

To quote a well-known behaviour theory from Richard Wyckoff, we can split the economic cycle of any stock into:

a markup cycle led by investors’ hype
a markdown cycle led by investors’ fear (it seems we are in this cycle today)

Now, let’s imagine we would like to understand how to recognise this pattern, understand market cycles, and speculate on specific securities based on these predictions.

Instead of using human abilities (discretionary processes), using algorithms makes it possible to perform statistical backtesting, with the possibility of predicting:

Maximum Drawdowns
Return on Investment (Net Profitability)
Volatility

of a portfolio or stock. This is advantageous because computer programmes, unlike humans, are unemotional and completely data-driven. Therefore trading and investing based on such algorithms can remove all biases and emotions (which are often costly to investors!).

Today, one of the leading searches for Finance jobs is Quant roles. So, for beginners what’s the best programming language to learn how to deploy quant methods?

Python. The graph above shows Python’s google trend from 2004 up today; it can be seen how the interest over time skyrocketed in early 2021 as the topic became appealing. Websites such as DataCamp, and UDemy have courses you that teach you how to code, and Jupyter or Datalore allow you to build your own programmes!

This is an exciting and rapidly increasing profession! It is becoming increasingly popular around the world as data becomes the most important commodity to businesses in all industries. Automation (through programming) also means fewer staff and reduced costs to businesses, so it is becoming an essential skill for young people!

I hope you enjoyed my first quant article!
Giuseppe

Disclaimer

This communication is for informational and educational purposes only and should not be taken nor used as investment advice, as a personal recommendation, or solicitation to buy or sell any financial instrument. This material has been prepared without considering any particular recipient’s investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or structured product are not, and should not be taken as, a reliable indicator of future performance. I assume no liability as to the accuracy or completeness of the content of this publication.