Market Analysis

The markets ended once again on a stable note (Stoxx600: -0.1% and S & P500: -0.6%) after a difficult start to the week following the North Korean nuclear test. Market reaction was ultimately more measured than expected, and investors seem to continue betting on a diplomatic outcome.

This week was marked by greater volatility in the indices, particularly the Stoxx600NR, which ended with a 0.6% rise after a start of the week under pressure, due to the rise in the Euro, which surpassed the 1.20 level before to return to 1.18 / 1.19 on the weekend.

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.

Markets partially offset the last week decline without invalidating the downward short term trend, with a 0,6% increase for the stoxx600 and a -0,65% decrease for the S&P500.

Latam outperforms (LATAM) : weekly data

The stabilization is mainly due to the beginning of a thaw between North Korea, which has for the moment postponed its project to send missiles to the island of Guam, and the United States which welcomed this first gesture of appeasement.

This week was clearly a period of strong consolidation for the European equity markets (Stoxx600: -2.6%), US (S & P500: -1.4%) as well as the main emerging markets.

European Banks (BNK) under pressure this week (weekly data)

One reason for this is the escalation of the warmonger rhetoric between the US and North Korea, which now threatens US missile shots at Guam in the Pacific, while Donald Trump hardens its position leaving less room for a diplomatic solution.

Markets confirmed this week some decorrelation / fragmentation among the major indices.

First of all in the US, as the Dow Jones 30 continues its progression mainly driven by 3 stocks (Apple, Nike and Intel) that allow it to set a new historical record and break the 22000 pts level, while the Nasdaq and The S & P500 remained stable.

This week was full of contradictions, which lead once again to flatness (-0,5% for the Stoxx600 and flat for the S&P500).

It was also a rich enough period with both positive and negative developments. Firstly, the Q2 corporate results are so far of good quality and exceed the expectations in Europe and the USA with encouraging prospects for the second half of the year, which is excellent news confirming a new cycle of rising profits has begun, and is expected to translate into a virtuous circle of lowering unemployment, rising consumption and increasing investment.

This week was rather corrective on European markets (Stoxx600 Net Return : -1.7%), mainly due to the strong appreciation of the euro against the dollar (1.167), and the actual breakout of the 1.15 level.

The ECB has tried to reassure investors, arguing that it was still too early to talk about the normalization of monetary policy despite improved fundamentals, and while inflation remains at a very low level.

This week saw the rebound in most world markets, both in Europe, with a rise of + 1.8% for the Stoxx600, in the US ( S & P500 + 1.4%) and even more sharply in the Emerging countries (EEM, MSCI Emerging Markets : + 3.5%).

This week was marked by huge sector rotations in both the US and Europe, while overall markets were flat or reported a slight negative week on week performance.

These rotations were mainly driven by central banks that now look more focused on inflation risks despite lower energy prices.