Macro Highlights June 8th 2015

Analysis - 6/9/2015

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

Election results put a damper on Turkish assets

Elections over the weekend in Turkey produced a setback for Recep Tayyip Erdogan’s AK party, which lost the outright parliamentary majority that it had hung on to for 13 years. In a country where 20% of the population is Kurdish, the pro-Kurdish HDP party surpassed the 10% of votes required to gain parliamentary representation. A governing coalition must now be formed in the next 45 days, failing which President Erdogan will be entitled to dissolve parliament and call early elections.

Bearing in mind that the three main opposition parties have rejected any prospect of teaming up with AK, the political uncertainty and economic stability resulting from this election outcome are likely to continue weighing down the prices of Turkish financial assets. (...)

Equities still positively poised but cash useful too

It is usual for equity markets to rise in tandem with economic growth. Improved business conditions mean fatter profits for listed companies, which in turn boosts their market capitalisation. The trend does not move in a straight line, as swings in levels of investor confidence engender volatility. The valuation multiples attached to individual stocks fluctuate sharply over the short term. (...)

Janet Yellen gets her green light

Job creation in May, as attested to by non-farm payrolls, stood at 280,000, which was far higher than expected by leading market economists. In stark contrast to figures early in the year, which bore the brunt of harsh weather conditions, the numbers from May reverted to the underlying trend of more than 250,000 jobs added per month. The small uptick in the rate of unemployment, from 5.4% to 5.5%, does not give cause for concern because it moved in tandem with the increase in labour-market participation, from 62.8% to 62.9%. (...)

The good and the not so good in PMI numbers

Early June saw publication of HSBC’s closely followed PMIs, or purchasing manager indices, which provide useful information on the leading emerging economies. It is a well-known fact that emerging economies are a patchwork, reacting differently to changes in economic trends, and PMIs are no exception to the rule, offering widely different interpretations depending on the country that is being considered. On their own, the four countries making up the BRIC grouping – the leading emerging economies – provide us with a textbook example of such dissimilarities. (...)