Our Market Analysis : 26/08/2017

The stock market was rather quiet this week, both in the US and Europe where the indices ended on a slightly positive note (Stoxx600: +0% and S&P500: +0.8%).

The geopolitical tensions decreased a notch, despite the military drills held since Monday between the US and South Korea for a period of 10 days. At the same time, the political climate remains tense in the United States while Donald Trump threatens to close the federal administration if the Congress prevented it from building a wall on the Mexican border and modify the North America Free Trade Agreement (NAFTA). This was well noted by rating agencies worried of the US budgetary situation, Fitch warned that a shutdown of the US government could result in a downgrade of the sovereign rating of the United States.

As a consequence, the strengthening of the Euro against the Dollar again breaking the 1.18 level and a 10-year German yield down to 0.38%. At the weekend, markets are focused on the meeting and comments from central bankers in Jackson Hole even though no major announcement is expected.

The only substantial news for now: Mario Draghi's growing optimism in the growth of the eurozone economy with seemingly less and less risk on the recovery in progress. This increasingly positive comments seems to indicate that the reflation of the European economy is under way, which should lead the ECB to standardize its monetary policy from 2018, with a gradual tapering in Quantitative Easing (market debt buyback) and thereafter a gradual rise in short interest rates.

The asset class that came out of the game this week are clearly the raw materials (metals) with a surge in prices of copper, nickel or aluminum. The reflation of the global economy with a growth forecast at 3.5% this year coupled with a rationalization of the current Chinese overcapacities is at the origin of this dynamic.

Basics take the lead : BRE (Basic Resources Europe), weekly data

Copper prices soar : iPath JJC, weekly data