The CIO office’s view of the week ahead.Last week brought some unexpected news in trade relations, with President Trump putting the threat of tariffs on EU car imports on hold and promising to re-examine those recently imposed on European steel and aluminium imports. At first look, it seems like wise heads are beginning to prevail in Washington. And with US companies becoming more vociferous in their concerns about tariffs, Trump himself needed to show his “art of the deal” was bearing fruit. But will, as European Commission president Juncker apparently promised, the EU import “significant” amounts of natural gas from the US? And soya beans as well? The French are already pouring cold water on any wide-ranging deal with Trump. And we know we are always just a tweet away from a complete
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The CIO office’s view of the week ahead.
Last week brought some unexpected news in trade relations, with President Trump putting the threat of tariffs on EU car imports on hold and promising to re-examine those recently imposed on European steel and aluminium imports. At first look, it seems like wise heads are beginning to prevail in Washington. And with US companies becoming more vociferous in their concerns about tariffs, Trump himself needed to show his “art of the deal” was bearing fruit. But will, as European Commission president Juncker apparently promised, the EU import “significant” amounts of natural gas from the US? And soya beans as well? The French are already pouring cold water on any wide-ranging deal with Trump. And we know we are always just a tweet away from a complete volte-face in the American stance.
Trade tensions are having an uneven impact on US corporations’ earnings outlooks, but Q2 results have been generally upbeat. Noticeable, however, have been the mixed fortunes of some tech-related behemoths. Netflix reported disappointing viewer growth, while Facebook stunned investors – and lost USD 120bn in market cap – with its warning of slower user and advertising sales growth. Shares in Twitter were also hit when it announced a drop in user numbers. By contrast, Amazon and Alphabet have reported more crowd-pleasing metrics. We are neutral on tech stocks in general: one simply cannot buy this sector blindly.
The ECB’s Mario Draghi provided an upbeat assessment of the euro area and signalled a likely halt to bond purchases at year’s end. But there is no solace for policy hawks, with rates unlikely to rise before September next year. Pointedly, Draghi said that money-market expectations aligned “very well” with those of the ECB’s Governing Council. So, the market can get it right sometimes. This is encouraging, but the market’s powers of prediction will be tested again next week when the Bank of Japan (BoJ) meets. We do not expect it to alter its 0% 10-year yield curve target, but it could announce a “formal review” of policy. Things are stirring at the last major central bank committed to quantitative easing, explaining both our positive stance on the yen and short-duration position in bonds.
César Pérez Ruiz, Head of Investments & CIO