Not really an economic surprise…
Economic surprise indices and raw materials prices rolling over in Q2
One of the notable features of improving sentiment in global stock markets over the last 6 months has been its reliance on ‘soft’ economic data and a continuation of positive surprises. We cautioned in March that economic surprise indices were both seasonal and mean reverting and also highlighted the tightening of monetary conditions in China, historically linked to declines in iron ore prices. Six weeks later, global economic surprise has rolled over outside Europe while energy, coking coal and iron ore prices are falling sharply.
Read more...Sector view: Boring old insurance
In a fully valued market, a defensive sector priced sensibly
Our view that developed market valuations remain somewhat extended remains place. However, there is one sector which does not appear overvalued or compromised by legacy liabilities and questions over the future sustainable return on equity. Nor does it appear directly in the line of fire of technology’s advance like retail, or subject to on/off policy switches in China which have contributed to the de-rating of the resources sectors. European insurers appear from a top-down perspective to offer sensible valuations, reasonable returns on equity and high dividend yields in a low interest rate environment.
Read more...French Election: Is populism already passé?
Relief rally follows 1st round vote which puts Le Pen against a moderate
If last year was the year investors were caught out by misleading polls, today’s market action suggests that investors are being caught out by mistrusting them. A collapse in near-term euro volatility, sharply higher equity markets and a compression in the spread between French and German government bonds emphasises the relief that Le Pen was not in a run-off with a far left-wing candidate.
Read more...Market wobble? Still time to re-position portfolios
No clear trigger for recent market declines
Even if some calm has now returned, the market declines this week are perhaps a little more disconcerting than usual as they have occurred with no obvious trigger and followed an extended period of very low volatility. This makes the situation a little more uncertain, as specific triggers can often be analysed, quantified and discounted. There is therefore the danger of investors becoming fearful of the unknown - and risk averse - should the declines become more serious.
Read more...Just what the Fed wanted
A rate increase and a rising market – but was it really dovish?
Having primed markets to fully expect a US rate increase, the FOMC followed through on the 15th March. If the aim was to deliver a rate increase without abruptly causing tighter financial conditions (code for declining equity and credit markets), then it was mission accomplished. Following the FOMC announcement the dollar eased against other currencies, bond yields fell and equity markets gained. However, despite comforting language within the statement we detected a more strategic, rather than data dependent, direction for US interest rates in the press conference Q&A.
Read more...Ready for the rollover?
Tentative evidence of slowing economic momentum
Despite buoyant global asset markets, we are seeing increasing evidence of slowing economic momentum. In the US, bank loan growth has slowed significantly since Q4 16 and the Atlanta Fed’s GDP nowcast is only indicating 1.2% US growth for the current quarter, compared to over 2.5% as recently as early February. In the UK, the services PMI peaked in January and is now declining while in Europe - a bright spot in terms of economic surprise – disappointing German factory orders cast some doubt on the durability of any recovery. China’s M2 money supply growth has also ebbed since Q1 16, suggesting an easing of basic materials prices, should prior correlations still hold.
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