Q3 earnings season has been strong virtually all over the place, well above expectations, and consensus forecasts move up. According to analysts at Julius Baer, “equity weakness continues to be driven by performance protection and money flow rather than fundamental factors.”
Ofelia Marín- Lozano | In recent years, one of the most repeated commentaries when recommending investing in European stock markets tends to be: Why should invest in Europe when the US stock markets outperform year after year? In 22 years of history which coincide with the birth of the Euro Stoxx 50, for the first fourteen years the two markets moved almost in parallel. Only since 2011 can a clearly superior and sustained performance by the S&P 500 be observed.
The 10-year US Treasury yield has risen to above 3.20%, the highest level in more than seven years. As commented by Jeroen Blockland from Robeco, “few investors anticipated that US yields would rise to these levels and this is currently causing a bit of volatility”.
The US and Canada have reached a trade agreement which will replace the existing NAFTA (North American Free Trade Agreement). This new deal shows the ability of the US administration to negotiate and secure new trade agreements, although it is very unlikely to reach one with China given the geopolitical rivalry between both countries.
The Federal Reserve raised its benchmark interest rate by 25 basis points. The effective rate will evolve in a corridor between 2% and 2.25%. The dots graph reflecting monetary policy committee members’ expectations suggests 3 rate increases in 2019, 1 in 2020 and none in 2021. As pointed by Philippe Waechter from Natixis IM, this profile, for 2019 and 2020, is unchanged from last June forecasts.
James Rice via Caixin | The U.S. media’s daily narrative on China and the U.S.-China relationship paint a bleak picture: Pollution, exchange rates, ghost cities, protectionism, and unfair trade practices dominate the story. Rather, we should remember that historically, China and the U.S. have been friends and have long enjoyed a mutually beneficial relationship.
Global equities have held up fairly well in light of the generally negative news flow, entirely driven by the United States, where stocks are up 9.6% year to date, while the euro area, Japan and emerging markets have underperformed. In this context, the Research team from AXA IM points that earnings momentum remains “robust” with the second quarter earnings season posting “positive growth” and “surprising” on the upside across most major regions.
Justin Irving | The word “boom” evokes some temporary period of above-average economic growth. The Roaring 20s, the plentiful 50s and 60s and the Dot Com era. Because booms are characterized by unexpected levels of economic growth, asset prices, which had not priced in the growth, rise sharply. Is this what is going on US economy today? Not quite.