The markets are still providing a backdrop that looks pleasing enough: macro-economic performance continues to improve in Europe and even the United States, where the most recent figures were good. Strong results published by major US corporations (Walmart and Cisco) bear testimony to the ongoing growth of the economy and the confidence of the American consumer. Equity indices all over the world are recording increases that are verging on double-digits. Donald Trump’s deferral of the introduction of customs tariffs on the automobile industry (particularly from Europe) also reassured investors. The US stock markets rose for three consecutive trading sessions. But behind the scenes, things are not so shiny, particularly in the financial sector. Since the beginning of the year, $120 billion has been withdrawn from equity funds ($59 billion from European funds and $60 billion from US funds). Technology stocks are also suffering from a certain degree of disaffection, as US “techno” funds saw a reversal of flows after collecting strongly for two years. The bursting of the “flow” bubble in this sector should, however, be seen as a good thing. The failed flotation of Uber (-4%) following that of its smaller rival Lyft (-23%), demonstrates that investors are more than sceptical about these global technology models that operate using personal data under security conditions that are somewhat brittle to say the least (the most recent example of this being WhatsApp).
But backstage, things are buzzing. The Chinese are starting to put in place a strategy of retaliation against the US measures, by allowing their currency to slide. This will be a devastating weapon to use, as it will immediately render Chinese products more competitive and a new currency war could break out, which usually proves to be the corollary of any trade war. The signature of an anti-Huawei decree banning the sale of telecoms equipment products in the United States and the hardened tone adopted by all US political parties towards China do not bode at all well for the coming weeks. There is still the G20 summit on 28-29 June, where the Chinese and American presidents could appease the markets by exchanging a few amicable gestures.
Finally, Europe and the European elections will deliver a result that would be hard to read at first reading, with a Parliament that has no absolute majority, fragmented as it is between traditional and extremist parties. And if we add into the mix the British MEPs who are going to be elected to a Parliament they want to leave, we end up with the kind of absolute farce that only the Europeans, their leaders and their institutions are capable of putting on.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in May 17th, 2019.
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