January 27, 2017

DNCA's weekly market outlook by Igor de Maack

Management comment

Amid a flood of decrees from the new US administration, fulfilling the campaign promises, including the cancellation of the Trans-Pacific Partnership and building a wall along the Mexican border, Europe was greeted with the pleasant surprise of the UK Supreme Court imposing a Parliamentary vote on Theresa May’s government before it can launch the Brexit procedure. However, this obstacle is unlikely to jeopardise the triggering of article 50. Meanwhile, the reporting season got off to a good start, with initial annual earnings reports so far reflecting the return of a profitable environment, particularly in China (see LVMH). Chinese sales accelerated once again among spirits and fashion goods, such as leather and watches.
 
On the global economic front, the interest rate situation remains unstable, particularly following the oblique declarations from the European monetary authorities, proclaiming that the ECB quantitative easing programme could come to a close sooner. Investors were rattled as ten-year yields steepened, with the 10-yr OAT breaching the psychologically important 1% threshold, reminding the markets that average bond market duration has increased, while remuneration levels have collapsed, and that this situation is becoming increasingly untenable.
 
However, real yields remain in negative territory and therefore provide ideal conditions for mergers & acquisitions. The bank-insurance industry was awash with rumours of an Intesa-Generali deal, while the US group Johnson & Johnson announced plans to take over its Swiss peer Actélion in the biotech sector. Markets entered a short term roller-coaster tactical phase. Although equity volatility has been close to all-time lows (VIX) since the election of Donald Trump, interest-rate volatility (MOVE) has been climbing constantly since the end of October. This paradoxical situation is probably unsustainable. Future bouts of volatility will probably provide advantageous opportunities for investors who still believe in an improvement in the global and European economic cycle.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in January 27th, 2017.

This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.

DNCA Investments is a trademark held by DNCA Finance

Amid a flood of decrees from the new US administration, fulfilling the campaign promises, including the cancellation of the Trans-Pacific Partnership and building a wall along the Mexican border, Europe was greeted with the pleasant surprise of the UK Supreme Court imposing a Parliamentary vote on Theresa May’s government before it can...
2017-01-27