February 23, 2018

Market influenced by technical factors

Management comment

Since February’s Great Correction, the markets have entered into a technical, volatile and uncertain phase. They regularly test the levels and supports adored by chartists: 1.25 for the euro/dollar, USD 70 for oil and 2.9-3% for US 10-year government bonds. Fundamental data remain positive also in the US, where the Fed admitted to being surprised by the magnitude of the effect triggered by the tax reform.

Residential construction posted strong growth in January (+9.7% in housing starts), and business climate surveys also registered satisfactory levels in February in both components (industry and services). Inflation figures, which have been extensively (excessively?) commented on, are not yet real cause for concern, but a little everywhere around the world, the themes of pricing power and the shortage of materials and manpower are increasingly resonating. Investors’ doubts and questions have been fuelled with US central banker Jerome Powell really taking the helm. Powell is first and foremost in the collective imagination the name of the American general who was victorious in the first Gulf War. Will the central banker take on the doctrine of overwhelming force dear to his namesake, by adopting a very aggressive approach?

His testimony next Tuesday could give a first response to investors regarding the speed of normalisation and therefore Fed rate hikes: three or four are currently expected for 2018. The first risk for him to contain will be that of the potential overheating of the US economy. For the first time in a long time, Europe is less cause for alarm than the US. Since the beginning of the year, flows have been clearly in favour of European equities to the detriment of US equities. In fact, investors have withdrawn USD 22 billion from US equities and invested USD 15 billion in European equities. We hope that the date of 4 March (Italian elections and vote within the SPD in Germany on the coalition agreement) does not mark a reversal of this favourable trend.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in February 23nd, 2018.

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           

Since February’s Great Correction, the markets have entered into a technical, volatile and uncertain phase. They regularly test the levels and supports adored by chartists: 1.25 for the euro/dollar, USD 70 for oil and 2.9-3% for US 10-year government bonds. Fundamental data remain positive also in the US, where the Fed admitted to being...
2018-02-23