Weekly Update – July (2nd– 6th)
- Macroeconomic Outlook
The overall context for this week is not all bad, but also not at all good. However, the possible absence of bad news in the upcoming weeks will allow markets to rebound from the recent sell-off. As it as has been seen last Friday, markets do not need too much news to rebound and improve. This means that in the end, the fundamentals of the market are still solid and short-term obstacles are what’s blocking them to move forward.
- Last Friday, as soon as there was a principle of agreement about immigration within the Eurozone, this has allowed us to see a more constructive future and release pressure over Germany and its immigration policy.
- Indeed, one of the three short-term obstacles of the markets is the German policy over immigration which in reality, if the policy of the European Union, as with many other countries like Spain, Italy or Austria are also facing similar problems.
- Second factor is oil prices, which increase the concerns of inflation.
- Third factor is protectionism.
1.- Hence, there should not be any bad news this week. Indeed, the government coalition in Germany, after the semi-agreement about immigration in the Eurozone and the stronger sense of state by political forces, can take more shape.
- At the end, the sense of state will be imposed in Germany and this variable will be disappearing, reducing the threat of instability of the markets.
2.- Regarding oil, there is always new news that will lead to an increase in prices. This increase in price is affecting inflation and is providing a strong support to bonds, making them overvalued.
- At first, this is bad for the markets since the cash flow of money always goes to safe havens, feeling more secure in bonds ahead of these types of events.
- It gives the impression that concerns over oil prices will not be possible to solve during the upcoming weeks, however, it will not also get worse.
3.- Then, we have protectionism. It is in a similar situation to oil, it does not have a better outlook towards the future. However, we already know it is something mostly bilateral between the United States and China rather than global.
- Over time, more controversial news will be released because the import will rise to 50bn to 200bn for example but will not happen immediately.
This week, with this improvement in the fundamental background of the markets due to the apparent absence of bad news, it is necessary to bear in mind that:
- This Wednesday is a holiday in the United States, which lowers the activity in the markets.
- On Thursday and Friday, there will be a convention meeting of Central Banks in Austria where the most hawkish bankers will probably have the word.
- This will probably lead to bonds not being that comfortable and retrace slightly, and in the absence of bad news, the markets should perform better.
- The third reference of the week is the American wages and unemployment rate.
- The Unemployment Rate should not weight as much as everyone know it is going really well.
- The rate is forecasted to remain at 3.8% and creation of employment probably would be under 200k.
- Regarding wages, the indicator can reach 2.8% coming from a previous 2.7%. Any figure close to 3% can increase the concerns on inflation.
- Nevertheless, at the same time, concerns of inflation can affect bonds, and whatever influences bond gives some breath to the markets.
- The Unemployment Rate should not weight as much as everyone know it is going really well.
Therefore, considering the current context with all these factors and references, it appears to be good for the markets in absences of bad news and strong fundamentals.
- Short-term will remain hard and nothing will be solved quickly, nonetheless, looking to the medium-term, investors should remain calm and follow the triple P rule:
- Positioning
- Perseverance
- Patience
