Weekly View – TIMEOUT
The CIO Office's view of the week ahead.
The headline event at last week’s G20 summit in Osaka was the bilateral meeting between the Chinese and US presidents to discuss trade. After their last meeting ended in a stalemate, the world waited to see who would be first to blink. The rather anticlimactic outcome was that both sides have agreed not to add any new tariffs for now. The only real positive news is that Trump agreed to a partial lift on the Huawei ban, although without any clarity on what that means in practice. However, we at least have a timeout on the tech war. Meanwhile, Russia announced an agreement on oil production cuts with Saudia Arabia, sending oil prices higher. We are positive on energy as a result. Key to watch this week are the US ISM figures, after China’s weak Caixin PMI print for June.
As we move into Q2 reporting season, we think results could beat expectations but that many US companies will lower forward guidance, pointing the finger at the deteriorating global trade picture and uncertain outlook. While US companies are prone to issuing pessimistic earnings outlooks, for Q2 this year they have issued even more negative guidance than usual. We are back to fundamentals now and need to see whether the economy or companies step up to carry markets going forward. The risk of a US earnings recession is on the rise and we remain underweight equities.
All 20 US Democratic presidential contenders took the stage last week in two televised debates. Going into the debates, former US vice-president Joe Biden was the clear favourite to lead the Democrats in the race against Trump next November. Unfortunately, debates do not tend to be good indicators of what direction voter opinion takes. What will be key is whether the Democratic party swings to the middle or selects a candidate on the populist left to take on Trump in 2020. This will direct not only the Democrats’ chances of defeating an incumbent populist president but also what the potential policy changes would be should they successfully retake the White House in 2020.
César Pérez Ruiz, Head of Investments & CIO, Pictet Wealth Management