Short-lived reaction to nuclear test

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Sunday's test of a powerful hydrogen bomb by North Korea shocked the world and may have major geopolitical repercussions. The world's financial markets, however, were only briefly perturbed.

hurricane devastation and disruptions to daily life may set the tone. Ben Steinebach Head of Investment Strategy

Labor Day kept US financial markets closed on Monday and their response to the North Korean nuclear test came on Tuesday: equity markets lost around 1% as investors scurried to safer havens in the shape of gold and bonds. Predictably, swings in Asia were rather more violent, but across the world markets were back to focusing on economic fundamentals from Wednesday. These proved generally positive: purchasing manager sentiment in manufacturing, a major gauge of business confidence, improved in most countries. In services, by contrast, some countries saw their indices dip - although these were still at high and confidence-inspiring levels. In fact, the only negative outliers were German factory orders and US durable goods orders - typically fairly volatile indicators - and no firm downtrend has yet emerged. Export numbers in Germany and China also disappointed, but still recorded growth. As the week drew to a close, Hurricane Irma and Mexico's earthquake somewhat depressed sentiment.

Draghi fails to surprise

The week's key focus was the ECB, whose board met on Thursday. President Draghi's press conference afterwards brought few surprises.

The financial markets were watching keenly for any changes in economic forecasts or comments suggesting alterations to the ECB's asset purchase programme. As it was - and unsurprisingly - economic growth forecasts for 2017 were revised up a bit, although those for 2018 and 2019 were unchanged. The euro's strength has necessitated a slight downward revision in inflation forecasts for 2018 and 2019, implying that inflation will not top the ECB's 2% target in seven years. Draghi reported that the asset purchase programme will continue at EUR 60 billion a month through the end of the year, and that it may be extended or raised if deemed necessary. In fact, there wasn't even a hint of tapering, which was only to be expected in view of the strong euro and lower inflation expectations. At the press conference, Draghi noted that the bulk of any new policy measures would probably be taken at the October meeting, and said that key interest rates are likely to stay at their current low levels for quite a while yet, at least until after the asset purchase programme has ended.

AEX holds up despite Akzo news

The AEX index failed to make the difference and moved more or less in line with the rest of the European indices. On Friday, Akzo Nobel issued a profits warning and its CFO stepped down.

Amsterdam's main gauge closed the week pretty much at the same level it started: around the 518 mark. The most important bit of corporate news to hit the Dutch market came on Friday: Akzo Nobel issued a profits warning and its CFO stepped down for health reasons. This made her the second key director to leave the chemicals company in a short time, as the company's CEO had left for the same reason not so long ago. Numerous changes in senior management are not good for a company's continuity. Akzo's profits warnings would not appear to reflect anything structural, although it will not now achieve its stated aim of a EUR 100 million improvement in operating profit (EBIT). Akzo cited three reasons: Hurricane Harvey, the fire at Shell in Rotterdam and stricter environmental rules in China. All this will feed into PPG's determination to bag Akzo.

In time, monopile producer SIF could benefit from a report just released by the Dutch province of Groningen, urging the minister for economic affairs to build more wind farms in the most northerly part of the Dutch North Sea, as these would help the country achieve emission targets.

In the international arena, financial services companies were under pressure in the week, insurers because of hurricane devastation in Latin and North America, and banks because of renewed falls in interest rates. Corporate news included the takeover agreement between United Technologies and Rockwell Collins for a consideration of USD 23 billion, creating the world's largest manufacturer of aircraft parts and worrying the likes of Boeing and Airbus.

Walt Disney issued a profits warning and now predicts 2017 earnings roughly on a par with 2016. Lastly, Amazon announced that it's about to open a second head office in North America, investing USD 5 billion and potentially creating 50,000 jobs. It has invited cities with over one million inhabitants to express an interest.

Weather may prove the week's key news

In terms of scheduled news, the week ahead looks relatively calm, but hurricane devastation and disruptions to daily life may set the tone.

Hurricane Irma has already wrought havoc in the Caribbean and is likely to make landfall in Florida on Friday evening. Our thoughts are with those caught up in the hurricanes and the families of their victims. Storm damage and disruptions to daily life may also put their stamp on the financial markets. Hurricane Irma looks likely to have Hurricane Jose hot on its heels, while it appears as if Hurricane Katia will hit Mexico.

Macroeconomically, Friday will bring the highlight of the week, as the United States is due to release its August retail sales (expected to come in at +0.1% month-on-month). The week's other crop of figures includes inflation and industrial production numbers. The United Kingdom is predicted to report August inflation up to 2.7% annualised, while Germany and the US are thought to be looking at an annualised increase of 1.8% and China at 1.6%. July industrial production in the eurozone is predicted to have notched up a month-on-month advance of 0.2%. The US is reckoned to be looking at 0.1% for August. Meanwhile, China is believed to be heading for a 6.6% annualised rise in industrial production in August, while the markets also expect to see its retail sales grow by 10.5%.

Oracle is due to report results for the first quarter of its 2018 financial year. The markets are particularly interested in how its Cloud division is faring in terms of growth, as Oracle is looking to make significant inroads with this division and is investing in attracting more staff. At the hardware end, by contrast, it is making very deep cuts indeed and job losses are inevitable.

Tuesday will see the launch of Apple's new iPhone8 at the Steve Jobs Theatre in the company's brand-new headquarters, Apple Park. Many of the smartphone's new applications are already known to the markets, and analysts are most keen to know at how much the device will be priced. Expected to work out at around USD 900 for the 64GB OLED, its product margins are likely to be a tad squeezed but this should be offset by growth in Apple's Services division.

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