September 01, 2017

Tensions on the Korean peninsula, historic flooding in Texas, strong Euro… major events broke a stretch of and could set the tone on financial markets for the next weeks.

Management comment

The launch of a missile by North Korea over Japan has rekindled the diplomatic crisis between the US and the rogue nation. The Americans are also facing Hurricane Harvey which is devastating Texas and adding to the reigning anxiety. It will take some time for the state’s oil infrastructures to resume production. Although the impact on the US has yet to be fully assessed, the economy is nonetheless continuing to expand, despite the absence of any decision regarding tax reforms for the time being. After constant one-way investment flow since April towards Europe and the eurozone, last week saw the heaviest outflow from Europe for the first time in twenty six weeks (USD 1.4 bn). Statements from the Fed and the ECB have led to the adoption of a wait-and-see attitude among investors, given that since 2011, both central banks have skilfully managed communication targeting the financial markets and protecting savers.
 
The reporting season is drawing to a close in Europe amid positive (Vivendi) and negative surprises (Carrefour). Profit-warnings from Prosieben and WPP cooled market optimism regarding the scope for any further upgrades in consensus earnings forecasts. The second half of the year will be marked by the strong euro rally vs the dollar, which is negative for European exporters, and potential monetary policy decisions. There has nonetheless been a discernible uptick in business activity in the eurozone, which could reach 2%. Economic expansion underpins corporate earnings growth and heartens investors, as the European recovery is primarily domestically-driven by local consumers.
 
Volatility may increase over the next few months and provide more advantageous investments opportunities among certain sectors and stocks. Markets are unlikely to correct heavily as long as the net dividend yield from European equities remains above 3% and unless there is a major downturn in the macroeconomic climate.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in September 1st, 2017.

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The launch of a missile by North Korea over Japan has rekindled the diplomatic crisis between the US and the rogue nation. The Americans are also facing Hurricane Harvey which is devastating Texas and adding to the reigning anxiety. It will take some time for the state’s oil infrastructures to resume production. Although the impact on the US has...
2017-09-01