Strong start to the week for risky assets

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  • Early indications suggest that the damage from Hurricane Irma is less severe than expected.

  • UK inflation print and Apple product event in focus.

Hurricane Irma causes less damage than expected

Hurricane Irma made landfall in Florida over the weekend. Since then it has been downgraded from a Category 5 hurricane to a tropical storm. Early indications suggest that the damage from Hurricane Irma is less severe than expected. According to Bloomberg, Enki Research’s estimate for total damages has dropped to USD 49 bn from USD 200 bn earlier.

Unsurprisingly, insurance companies were among the best performing stocks around the globe. The USD index also benefited from the news that the destructive effects of Hurricane Irma are not as bad as some feared and from the decline in geopolitical tensions, as North Korea did not test another missile on its founding anniversary last Saturday. Safe-haven assets, such as gold, the JPY and the CHF, all traded lower when risk appetite returned yesterday. We expect gold to underperform as muted primary demand leaves gold prices dependent on investor flows, which are particularly sensitive to the dynamics in rates markets.

Despite the decline in geopolitical risks, we expect the JPY to strengthen further due to its attractive valuation and a potential shift in the Bank of Japan’s easing policy. Eurozone equities had a strong start to the new week. We maintain our positive view on Eurozone equities as the strong economic momentum should result in better earnings and political risks in the Eurozone are fading. Besides Eurozone equities, we maintain our outperform view for Swiss and Australian equities. In line with the risk-on environment seen yesterday, US Treasuries declined as US 10-year yields moved higher. Our view for fixed income remains neutral with a preference for investment-grade corporates and financials.

UK inflation print and Apple product event in focus

Inflation data for the UK will be published today and the Bank of England will decide on its policy rate on Thursday. Later today, Apple Inc. will present its latest product, which will probably include the new iPhone 8 and a fresh version of the Apple watch. This is an important event for the tech sector, as expectations not only for Apple but also across the whole supply chain have increased quite significantly.

>> Click here to watch Apple Special Event – September 12 at 10 a.m. PDT

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