Weekly View – Wasn’t Me
The CIO office’s view of the week ahead.
Politics and related events around the world continued to dominate headlines, distracting markets. In the US, clarity around the next tranche of tariffs on USD 200bn worth of Chinese imports failed to materialise as the Trump administration became preoccupied by a White House insider’s New York Times op-ed, which coincided with the imminent release of the latest tell-all book by journalist Bob Woodward. Meanwhile, in the run-up to Brazil’s potentially destabilising presidential elections, front-running far-right candidate Jair Bolsonaro was stabbed at a campaign rally. Across the Atlantic, the outcome of Sunday’s Swedish elections signifies continued political uncertainty while a government is formed.
But last week brought good news as well. US August payrolls confirmed that the US economy is in excellent shape as the Institute for Supply Management (ISM)’s business survey of manufacturing reached its highest level since 2004 while US wage growth reached 2.9%, y-o-y. In emerging markets, pressure on assets persists but signs of improvement are showing. China’s currency stabilisation supported Asian currencies. Still within Asia, the Indian economy is recovering from the negative effects of demonetisation and grew by 8.2% in the last quarter. Turkey signalled it would start to raise interest rates, which had a soothing effect on markets. In Argentina, the central bank governor’s comments reassured markets and allowed the peso to recover, rallying for three consecutive days. Japan’s economic growth is also improving, with wage growth coming through. Furthermore, its currency, the JPY, is very stable, and we maintain our overweight position.
In the week ahead, we will be watching for the latest publication of the Fed’s Beige Book and CPI numbers in the US, to determine whether they impact our scenarios. In equity markets, until investors start taking profits in winners (i.e., US tech), due to current uncertainties ranging from Italian budget discussions to Brazil’s upcoming elections, we continue to remain neutral on equities.
César Pérez Ruiz, Head of Investments & CIO