Macro Highlights February 16th 2015

Analysis - 2/17/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

§Investors in sync with growth?

We now know last year’s rates of economic expansion for nearly all the developed countries. The last of these to report their fourth-quarter GDP data were actually the two sick men of the industrialised world, the Euro Zone and Japan.

The reason we spend so much time poring over GDP figures is because analysing and forecasting the economic cycle matters vitally if we want to gauge future returns on financial markets. Our econometric market indicator, which tells us how stockmarkets should perform and what the slope of yield curves should be in any given year, also reveals whether investors are correctly reading the business cycle. The faster an economy grows, the more profits companies are able to generate and the steeper the yield curve* becomes. [...

*In finance, the yield curve is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc...) for a similar debt contract. [...]

Is this a miracle, or what?

According to the first estimate of Euroland’s fourth-quarter GDP compiled by Eurostat, the area’s number-crunching institute, economic output in the 19-member currency zone grew 0.3%. That is a cut above the dismal 0.1% figure that we ourselves were expecting and begs the question: is this a miracle or just a statistical blip?

Actually it is both. Let’s start with the Wunder. Growth in Germany turned out to be quite dynamic and a bit better than we had anticipated. With expansion clocked at 0.7% in the final quarter of 2015, the German economy by no means pales in comparison with America’s, for example (see chart below). Spain, the Netherlands and Portugal also make a good showing, suggesting that the reforms they have undertaken in recent years are starting to pay off.