October 13, 2017

On the eve of third quarter publications, the good health of the US and European economies carries the markets.

Management comment

US employment figures improved further and the economic climate continued to brighten in Europe, with industrial production data coming in at +3.8% vs an expected +2.6%. The Catalonian referendum did not drive markets lower, although the crisis has not yet been resolved, while the deadlock in the Brexit negotiations demonstrates the difficulty in escaping the stranglehold of a customs and commercial union. The Q3 reporting season is getting underway in the US and in Europe. The risk of disappointment appears low as confidence indicators and guidance from corporate managers across the board reflect strong momentum among industrial and service business. It should be noted however that earnings fell slightly short of consensus in the US telecoms sector and among tech stocks (AT&T, Juniper). The build-up of public and private debt around the globe, in conjunction with the way in which the interest-rate hike cycle is being managed, remains an area of doubt in the medium term for the current capitalist system however. Further to these monetary issues, robotisation and digitalisation are putting heavy pressure on the established dynamics and logic in the jobs market, along with the ageing population, which is weighing on growth and increasing the burden on healthcare and retirement systems. There are effectively few short term risks as the increase in the pace of global growth is showing no signs of slowing.

Humanity is currently experiencing a giant technological leap forward. In the medium term however (2018 and beyond), the perpetual questions asked by investors since the subprime crisis in 2008 will resurge. How can we cope with the weight of public debt? How can we remove the mass of liquidities made available by the central banks since the implementation of accommodating policies? Is it possible to imagine a situation without excessive credit distribution for households and companies? How can the real-estate price bubble be curbed? How can we manage social inequalities within a country and outside of privileged areas? How can we reaffirm democracy and avoid the instability and unknown factors inherent in elections and popular voting systems?

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in October 13th, 2017.

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US employment figures improved further and the economic climate continued to brighten in Europe, with industrial production data coming in at +3.8% vs an expected +2.6%. The Catalonian referendum did not drive markets lower, although the crisis has not yet been resolved, while the deadlock in the Brexit negotiations demonstrates the difficulty...
2017-10-13