Editorial

Keeping the lights on

There has been a revolution in the European commercial power generation sector over the last decade, with renewables accounting for a significant increase in new capacity. At the same time legislative changes requiring the introduction of energy-efficient home appliances have contributed to a sharp slowdown in power consumption, particularly in Germany and the UK. This raises questions about the extent to which Germany’s dash to expand renewable generation capacity or the UK’s desire to build new nuclear stations are supported by demand trends. 

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Broken relationships – finding regime shifts in correlations

Correlations are seldom stable, in particular across financial assets, whose characteristics alter as market conditions change. Such changes – amongst others – ultimately drive shifts in correlations. For example, in recent years, changes in central bank policies have largely affected correlations. Here we introduce a stringent screening methodology to detect significant correlation shifts across a large number of assets, and determine which side of the correlation pair has driven the change. In particular, correlations of the euro and the pound with other assets have shifted, with implications for investors, for example an increased (relative) volatility of Eurozone equities. 

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Renewable energy continuing to increase market share

World production of renewable energy grew 2.6% between 2013 and 2014, reaching 1,894 million tonnes of oil equivalent (Mtoe) by the end of 2014. This represents around a seventh (13.8%) of the total primary energy supply (TPES) of 13,700 Mtoe (Chart 1). Since 1990, energy from renewable sources has grown at an average annual rate of 2.2%, higher than the 1.9% growth rate of TPES (Chart 2). Growth has been especially high for solar photovoltaic and wind power, at 46.2% and 24.3% respectively.

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Equities

Commodities

Gold is once again the safe haven

The gold price climbed to a multi-year high in the summer. Gold ETFs are still registering inflows. That said, the price rise was speculatively driven in part, meaning there is some correction potential. The trigger could be speculation about an interest rate hike by the US Federal Reserve. However, we consider it unlikely that gold will come under pressure, and expect the gold price to be traded at USD 1,350 per troy ounce at the end of the year.

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Asia