September 30, 2016

DNCA's weekly market outlook by Igor de Maack

Management comment

The markets were perturbed once again this week by news form the banking sector in Germany. The fine inflicted on Deutsche Bank (USD 14bn) reminded investors of the potential dangers of being involved in the investment banking industry in the US. The saga also further undermines the “Deutsche Qualität” concept which had already been rocked by the Volkswagen Dieselgate scandal. Paradoxically, this situation may help peacefully resolve the Italian banking crisis in the eurozone. Matteo Renzi had already accurately pointed out that the banks on the other side of the Alps were not necessarily the healthiest or the most virtuous. Not all sectors were bearish last week however.

The surprise decision by OPEC to reduce output by 750,000 barrels per day following the meeting in Algiers drove oil stocks higher (majors and oil services). After the banks during the summer, investors may now reallocate weightings towards another “value” sector. Commodities-producing countries may also benefit from the more dynamic momentum. Some commodities prices were already beginning to trend higher in the wake of the oil rally underway since February (coal, palladium, nickel and other LME index metals). As global growth remains lacklustre, some aspects of production overcapacity have been reduced, particularly in China. Another bullish mini-cycle among commodities could therefore add to inflationary tension already discernible in the US.

This environment would also encourage capex (particularly in the energy sector) which has been depressed for several months in the US. In the bond markets, central banks have put investors into a comatose state which is now difficult to cast off. The next key date will be the decision in December by the Fed whether to raise its rates. Until then, investors will be focusing on potential electoral pitfalls.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in September 30th, 2016.

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The markets were perturbed once again this week by news form the banking sector in Germany. The fine inflicted on Deutsche Bank (USD 14bn) reminded investors of the potential dangers of being involved in the investment banking industry in the US. The saga also further undermines the “Deutsche Qualität” concept which had already...
2016-09-30