Macro Highlights April 7th 2015

Analysis - 4/7/2015

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

The amazing ascent of equities

Despite P/E ratios that are starting to look high, stockmarkets are reaching new records on the strength of investor confidence. The friendly conditions underlying their buoyancy include strong economic growth in the US, the Federal Reserve’s decision to leave its first uptick in interest rates on hold and money printing by the central banks of the Euro Zone and Japan. Even in the emerging countries, whose economies have run into hurdles, the possibility of China opting for increased monetary and fiscal stimulus to shore up business activity is regarded as reassuring.

Equities are enjoying the present environment of low interest rates even more than bonds, and European stockmarkets are getting an added boost from the euro’s depreciation. Meanwhile investors in Japan, goaded on by wage rises (the “third arrow of Abenomics”) are trying to bid up the Nikkei index. Thus equities across the Euro Zone, and to a lesser extent in Japan as well, are outperforming their counterparts elsewhere. In recent months they have soared to new peaks. (...)

The us economy braces for higher short-term rates

One major country is more equal than others when it comes to GDP growth: the US economy’s muscle-flexing is more and more visible. March data showed continuing vibrance compared with the other main blocs. The only drag this winter came from severe weather conditions and labour unrest in American ports and refineries. These factors skewed March employment data, but they were obviously temporary and pose no challenge to the structural improvement in job creation that has already pushed the national unemployment rate down to 5.5% of the working population. That is near the level regarded as neutral for inflation. (...)

A paradigm change

After being first to mount a comeback after the bursting of the dotcom bubble left stockmarkets around the world in tatters, the emerging benchmarks today are struggling to find new momentum. Between slowing economic growth in China, a resurgence of political troubles in Russia, social unrest in Brazil, precarious trade balances, bloated budget deficits and the slumping prices faced by large commodities exporters, there is no shortage of uncertainty. (...)