Newsletter dated September 12, 2017

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During the last 4 week markets have not been as quiet as many investors expected them to be in a typical summer. In fact we have seen some more political turbulences and an overall excellent earnings season. Versus our last report in early August US and European stocks are higher while crude oil is slightly lower. The biggest winner are Emerging markets and Gold. The Euro continued to gain versus US Dollar.

Earnings reports for the second quarter exceeded expectations by almost 5% for the S&P500 index. Earnings grew 9.6% and revenues 5.0% in the second quarter versus same quarter last year. In every sector, at least half of the companies have surpassed or met expectations, with many also getting a boost from a sinking U.S. dollar. In terms of growth and surprise the quarter has marked a record of several years. Europe has shown similar results with strong demand from Emerging markets.

There were several factors preventing markets from greater price gains despite positive earnings surprise yet. Of course there were two hurricanes paralyzing everyday life in Texas and Florida. The economic effects are still not calculated. Second. the ECB has continued to evaluate adjustments of its monetary policy for the near future. Currently we expect an announcement for late October. They might significantly effect EU interest rates levels, global currency prices and accordingly export business. Third, and probably the worst factor weighing on risky assets has been the growing tension between the US and North Korea both trading nuclear threats. After Donald Trump’s warning that North Korea faced “fire and fury like the world has never seen” North Korean Kim Jon-un continued to make threats against the US. Meanwhile many people have called for Twitter to ban Trump for violating community standards against hate speech and harassment. Trumps unthoughtful public announcements often touch national security. Sometimes US Pentagon will wonder if they are currently attacking North Korea – without knowledge of the action.

Trump economic agenda is under pressure as well. The IMF has adjusted its 2017 and 2018 growth forecast for the United States downward, and it has urged the US government to finally address pressing problems such as the aging of society, flagging growth and the unequal distribution of income. The Economic and Financial Committee of the EU criticizes US restrictions on free trade and international cooperation as an attack on economic world peace, but also as a detriment to the United States itself. Growing protectionism would put both global and US growth at risk.

Erwin Lasshofer and his INNOVATIS team see attractive opportunities for the near future. Currently we do see a great economic basis for markets in the near future has not been fully incorporated into current prices yet. Political tensions are put growth at risk. However, they can be solved. We rely on our capability to exploit opportunities for our clients in any market environment. The easiest access for clients is our managed account based on structured products.