March 12, 2018

Donald Trump set the tone for stock markets

Management comment

There was finally no surge in market volatility following the results of the Italian elections, unlike after last year’s referendum. It can therefore ironically be deduced that almost thirty million Italians voted to oust Matteo Renzi. However, his PD party, like all of the others, may still hold the balance of power in the formation of a ruling coalition, or simply provide legislative support to a technocratic government. As usual, there is no certitude regarding Italian governance. The markets are used to such a state of affairs however and the current economic situation is not comparable to 2011. The economy is showing a positive trade surplus and growth is being revised higher under the impact of the labour market reforms implemented.
 
In the eurozone, the ECB modified its forward guidance marginally, omitting any reference to stepping-up accommodating policy, with monthly asset purchases earmarked to remain set at € 30bn until September 2018. Although a three-month extension period is still possible, it will depend on the availability of fixed-income securities in the market.
 
 The Bank of Japan is also facing the same constraints having already bought heavily into the open market. Meanwhile, investors are anticipating an initial rate hike in 2019. It remains to be seen during which quarter. The decision will depend on the pace of economic growth in the eurozone and the 2% inflation target.
 
 Donald Trump has so far proved to be the leading driver among the financial markets. This was particularly the case following his declaration of protectionist measures, despite several exceptions regarding NAFTA partners, and the announcement of a possible summit with the North Korean leader Kim Jung Un. During the first quarter, capitalist centrifugal and centripetal forces will continue to exercise divergent pressures on financial markets.
 
Donald Trump, Xi Jinping and the central banks will be the arbitrators in this combat. Amid all of the current announcements and media noise, Europe and Japan will endeavour to remain on course in facing their own respective challenges, namely economic convergence in the eurozone and adapting to an ageing population.

Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in March 12th, 2018.

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There was finally no surge in market volatility following the results of the Italian elections, unlike after last year’s referendum. It can therefore ironically be deduced that almost thirty million Italians voted to oust Matteo Renzi. However, his PD party, like all of the others, may still hold the balance of power in the formation of a ruling...
2018-03-12