Markets’ Attention On Summer


Weekly Update (July 9th – 13th)

Macroeconomic Outlook

Summer is in focus now, and with it, the attention on the multiple factors that will condition whether it will be a good summer for the markets or a bad one.

Nevertheless, all these factors that unnerve investors are reaching a final outcome.

  • Last week, the markets performed better as the matters that block them improved slightly.
    • European policy and German politics have reached an outcome.
    • Then oil, which is still a problem.
    • And protectionism which is something more bilateral between China and USA rather than global.
      • When the market realises that, it will care less about it.

We were expecting a hard summer, however, the markets are starting to react in a positive way sooner than expected.

This week has three main references:

  • On Tuesday, the German ZEW Economic Sentiment which is expected to be negative again for the fourth month in a row.
    • It is relevant enough to watch out for but nothing especially important as the overall German economy has been increasing recently at 2.5% in the last trimester, which is really good.
  • On Thursday, there is US Core CPI which is forecasted to rebound from 2,2 to 2,3. This issue depends mostly on oil prices.
    • Over-inflated data may hurt bonds, nevertheless structurally it will not be a real matter which could be solved in 2 or 3 months.
  • And the third reference is American corporate results which start, among the big ones, on Tuesday with Pepsi Co.
    • And on Friday, three big banks publish results
      • Citi / +23%
      • JP Morgan / +30%
      • Wells Fargo / +11% and with some legal problems
    • They are expected to be really solid which will support markets.

Hence, this week looks like where a more positive sentiment towards markets can be consolidated.

  • German political turmoil looks clearer than before.
    • Even though it will come back in October with the elections.
  • Regarding oil, American pressures regarding an increase in production are graspable which will lead to Saudi Arabia producing more, and reducing oil prices.
    • This will reduce inflation related concerns.
  • Then, there is the protectionism which is mostly between the USA and China, being something more local rather than something global.
    • So that, when the market realises that along with strong corporate results, a good economic growth and a lot of liquidity, it will lead to an overall favourable economic cycle which will support the markets.