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The earnings season continues in the US and is positive as expected

25 October 2017

This week, fixed income markets moved in the opposite direction to last week: US 10 years bond yield was up 10bps and German bund yield 5bps to 2.37% and 0.45% respectively. These moves can be explained by the following things:

  • 2018 US budget vote passed. This was a milestone to US fiscal reform implementation
  • Donald Trump and John Taylor meeting went well. Since the latter is considered as a hawk (see "Taylor rule"), it pushed bond yields higher
  • Rumors that ECB purchases would be capped at EUR 200bn for 2018, which would lean towards EUR 30bn a month for 6 months. That is below market expectations

Equity markets were flat last week, apart from Japan (+1.5%). This is explained by Japanese elections last Sunday, where Abe won (and can win a super majority). The monetary policy is therefore expected to remain stable.

Earnings season in the US with 78 firms reported among the S&P 500 (78% beat estimates, 9% are in line and 12% below, EPS are in average 1% above expectations). In short, it is a good season, as expected. At the moment, US equities are not particularly rallying.

A few words on NAFTA negotiations between Mexico, Canada and the US. Talks are tough, Trump said US partners must pay for their positive trade balance with the US (sic), which is obviously declined by Canada and Mexico. In short, they will meet at next negotiation round next month, we do not believe in a NAFTA breakup by the US.

Next Thursday we will have a major ECB meeting, with tapering announcement. We do not have a strong opinion on what will be decided.

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La Française Allocation is a French UCITS in regards to the 2009/65/CE Directive. The Fund received AMF authorization on July 15th 2003 and was launched on July 31st 2003. The strategy changed as of July 19th 2012. Management company : La Française Asset Management – Paris – approved by the “Autorité des Marchés Financiers” under N GP97076 on July 1st, 1997.

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