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Gilles Seurat's take on this week's market

25 July 2017

This week was quiet in terms of data publication, newsflow was more concentrated on politics and central banks.

First of all, politics, with Mr. Trump who, once again, had a terrible week: on Monday, two additional Republican senators announced they were not supporting healthcare reform bill. The vote on the “Better Care Reconciliation Act”, better known as “Trumpcare” vote, was cancelled rapidly thereafter. With literally no law voted in Congress since he arrived out of 42 bills, the beginning of Trump’s term is clearly a failure. The end of week was not better, with FBI announcing Trump's real estate transactions with Russians would be investigated.

This political climate negatively affected the dollar and US goverment bond yields, which hurts us this week. We retain our positioning because we think the political noise will not last, and fundamentals should return to the forefront. We continue to think US yields are too low and markets should anticipate more Fed hikes.

On Thursday, Mario Draghi did his best to look dovish. Fixed income markets reacted well, but surprisingly the Euro continued to rally after the speech. This divergence adds conviction to our thinking that the Euro must go down again, and we added to that trade by taking advantage of good market opportunities.

The earnings season is under way, we will have 40% of Stoxx 600 publishing this week. We think earnings should be on the strong side given how positive macro data was. We increased slightly our exposure to this theme.

 

 

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