Europe is much less attractive than the US
Europe’s energy supply is under severe pressure, and the 8.9% inflation rate in the eurozone seems to be cushioned only by sharp increases in interest rates, which could push the European economy into recession. Is Europe still the continent you want to be in as an investor?
Although the European economy had a relatively good second quarter, with economic volumes up 0.7% on the first, concerns for the second half of the year remain high.
Chart of the week: Negative surprises limit upside potential
Negative surprises put a cap on the upside potential, especially for equities. As a rule, investors react strongly to surprises, often shaped as economic data. After all, the consensus expectation should already be incorporated in the prices.
It is therefore no coincidence that there are indices that mathematically determine the degree of surprises. A good example are the Citi Economic Surprise indices.
Moral hazard
After the stock market crash of 1987, measures were taken to prevent a new financial drama in the future. Under Ronald Reagan, “The President’s Working Group on Financial Markets”, now better known as the Plunge Protection Team, was formed in 1988.
On the way to a new recession?
The difference between US 10-year and 2-year yields has fallen to around 45 basis points. That is a flattening of the US yield curve of almost a full percentage point in the last four months. It raises the question of whether a new recession is imminent.
Is a recession on the way?
The yield curves on the global bond markets flattened dramatically during the second half of October. When flattening is followed by inversion of the yield curves, a recession is inevitable. This ominous development is causing concern in the market, but are the concerns justified?
Amundi: A monetary policy mistake is now the biggest risk
A monetary policy mistake is now a very big risk about which markets are not taking sufficient account. Tightening at the wrong time could trigger a recession. The first half of the year was very positive, but you also have to dare to take profits. Inflation will be more persistent than generally assumed. Caution is therefore advised.
Asset managers weigh coronavirus impact
The coronavirus is causing ‘a clear shock to the world economy’, according to Columbia Threadneedle. Janus Henderson calls the global spreading of the coronavirus ‘a real game changer that has dashed hopes of a V-shaped recovery in global growth.’
‘So far we are seeing two clear consequences: lower consumption and less supply,’ says Neil Robson of Columbia Threadneedle. He illustrates the first concern citing the Adidas market update last week, showing a 85% decline in activity in China.