The commercial truce declared by Donald Trump and Xi Jinping means that the financial markets can distance themselves from this issue for the time being. This gives them the opportunity to revisit the matter of global growth. As a matter of fact, they made massive buy-backs on short positions ($15 billion on the Stoxx 600, which is the third largest hedging trend since 2013). This will further complicate the stance of the central banks, especially in the United States, where the US Federal Reserve has used the spectre of the trade war to justify a sharp reduction in rates. At this time, it is pretty much 100% certain that they will be lowered in July, but what is more unclear is by how much. The ECB only needed to follow suit with a stance that was still accommodating, but in Europe, rates are already in negative territory for the core eurozone countries.
Europe has successfully delivered an innovative and feminine leadership (with Ursula von der Leyen as president of the Commission and Christine Lagarde heading up the ECB). The selection of an Angela Merkel acolyte, a Christian-Democrat mother of seven, to govern the Old Continent sends quite a strong message in the wake of the Jüncker years and the sorry saga that is Brexit. Finally, the triumvirate is completed by Italian Socialist Davide Sassoli, who takes over the presidency of the European Parliament. Criticism notwithstanding, after some hard bargaining, the Europeans have once again reached a consensus with the three biggest countries in the eurozone.
Mergers & acquisitions resumed with gusto, due to the low cost of finance and/or a plethora of affordable valuations on listed assets. Capgemini is taking over Altran to position itself as the market leader in industrial digitalisation. Searchlight laid its hands on French aeronautical equipment manufacturer Latécoère. The Danish family that owns Lego and the Blackstone fund want to get hold of the leisure parks owned by the English Merlin Entertainment group. Finally, the laboratory Abbvie purchased Allergan in a strange collaboration between Humira, its flagship drug for the treatment of psoriasis and rheumatoid arthritis, and Botox, Allergan’s well-known product that is used mainly to treat wrinkles.
Investors the world over are also getting their fix of financial Botox, as they are buying assets that appear to be flawless, with no lumps and bumps and no wrinkles (government bonds), although their actual returns mean that they are already the dinosaurs of global savings, and close to extinction.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in July 5th, 2019.
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