August 25, 2017

Berlusconi is back. Status quo after Jackson Hole Symposium.

Management comment

The markets, caught in snooze mode during the sunny return from the summer recess, were rudely awoken by the potential resurgence of the Italian political mogul Silvio Berlusconi ahead of the legislative elections in April 2018. Potential allegiances centred around Forza Italia, the party led by the man who has played a key role in the Italian political scene since 1994, with either the PD or an alliance between the Lega Nord and Fratelli d'Italia have so far failed to secure an absolute majority. The protagonists nonetheless perceive these negotiations as having marginalised the Cinque Stelle party. The current period of governmental instability combined with political incertitude is ultimately just a foretaste of a familiar situation in Italian institutional affairs, like an Aperol Spritz as a summer aperitif.

Meanwhile, Donald Trump’s threats including an administrative shutdown, rescinding on the NAFTA treaty and pressure to build the wall with Mexico are beginning to galvanise the Republican Party ahead of the mid-term elections. Also in the US, Amazon is combining e-commerce with bricks & mortar retailing by issuing USD 16 billion of bonds to raise cash for its purchase of Whole Food Markets, while Google is following suit, in a joint-venture with Wal Mart. In both virtual and physical markets, the retail industry abides by an imperturbable rationale, which involves delivering products from within a supply-chain to impatient price-sensitive consumers, in exchange for payment.

This type of merger between in-store and on-line retailers could also occur in Europe, where the sector remains weighed down by a complex economic situation, as illustrated by the recent profit-warning issued by Dickson Carphone. On this topic, shareholders in France are pinning high hopes on the new Carrefour manager Alexandre Bompard, who was formerly CEO at FNAC-Darty.

The central banks left for a fishing expedition at Jackson Hole in Wyoming over the weekend. Rumour has it that the symposium has become a global event since the Kansas City Fed managed to entice Fed president Paul Volcker to this renowned fly fishing spot in 1982. There was no change in tone and the official speeches lacked any real substance or interest.

Political leaders on the other hand, through their usual facetiousness, may yet manage to spoil the satisfactory year-to-date market returns driven by strong macroeconomic data and a rally among commodities prices. Let us not forget that Donald Trump saved last year’s market performances when he was elected! We should also remember that Volatility tends to work its magic during October and November.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in August 25th, 2017.

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The markets, caught in snooze mode during the sunny return from the summer recess, were rudely awoken by the potential resurgence of the Italian political mogul Silvio Berlusconi ahead of the legislative elections in April 2018. Potential allegiances centred around Forza Italia, the party led by the man who has played a key role in the Italian...
2017-08-25