A summer without spirit

Three major events punctuated this summer 2017: first, the geopolitical tensions around the North Korean record were vivid around the verbal threats of Kim Jong-Un echoing Donald Trump’s tweets. These events resulted in an increase in the VIX, an indicator of market volatility, also known as the “fear index”. This index, which, after hitting a historical lower on 26 July at 8.9%, rose to more than 17% on 11 August last.

Gold, considered as a refuge value, also reacted by advancing from 00 an ounce to 00. Finally, the decline in long-term U.S. rates that contracted from 2.4% to 2.2% again demonstrates renewed interest in one of the world’s safest assets.

Donald Trump’s inability to complete his program was evident:

The “Waltz” of White House advisors is historic
The Obama Care rebate does not take shape
Tax policy reform, including the decline in the corporate tax rate, does not
The repatriation of profits generated by US companies outside the national territory under favorable tax conditions does not even seem to be mentioned
Major infrastructure programs are no longer topical
Finally, the publications of the second quarter results of the companies have punctuated the evolutions of the markets:

In the United States, the publications were good overall, with a posted growth of 11% in line with the consensus. However, given the high level of valorisation of U.S. equities (PE over 20x profits 2017), bad publications have once again been strongly sanctioned as for Fresenius or Deutsche Telekom.
In Europe, the growth rates of profits have increased to more than 10%, which is good news with regard to the valuations of weaker companies than in the United States. This shows that the improvement of the European situation is real and seems to be accelerating.
The Global Euro stock market (MSCI world Euro) declined by 1.01% in July after consecutive decreases of 1.17% in June, 1.44% in May and 0.48% in April. The month of August falls by 0.9% reducing the performance since the beginning of the year to-0.71%.

After this steady decline in April, markets should integrate the improvement of the European economy and hope to return to positive performance.

Other indicators will be scrutinized with attention: inflation always too low in the world (USA, Europe, Japan for many years…) remains a point of attention of central banks.

The ability of Europeans to impose their rules and timetables on the Brexit will also be a key element for the markets.

Finally, the level of the price of oil that does not manage to cross the (WTI) is decisive for both inflation and global geopolitics.

Aymeric DIDAY
Director of management under mandate

Finished writing at 4:30 pm on 01/09/2017