Markets too complacent
Since late last year risky assets have seen a sharp rally, influenced by improving economic data and not least the ECB’s massive injection of liquidity through its 3-year LTRO in December. Global risk perception has softened across assets, taking our proprietary risk aversion indicator, the Nordea Risk Perception Index, to a lower level than just prior to the Lehman bankruptcy in September 2008.
However, considering the macro risks hanging over the global economy, U.S. Chief Analyst Johnny Bo Jakobsen and Euro area Chief Analyst Anders Matzen argue that markets may be too complacent.
They see at least four downside risks that could materialise this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.
- The US: the mother of all fiscal tightening.
- The Euro-area economy and politics could turn much less benign over the coming months.
- Risk of a hard landing in China.
- Risk of a new oil price shock.
Anders Matzen & Johnny Bo Jakobsen
Global Macro & Strategy
Read full report
The official election result is out and Indonesia has got a new president, the popular Jokowi. This is already priced in the market so IDR will be range-bound for now. It would be IDR positive in a longer perspective, if he succeeds in promoting growth and improving standards of living.
The flash PMIs for July point to a continued recovery in the Euro-area economy. Positive development in sentiment indicators is certainly welcome at a time, when the effect of e.g. the Ukrainian/Russian crisis is weighing on the economy. It is worth remembering that the numbers are unlikely to capture the recent escalation in geopolitical tensions, but the latest weakening of the euro and the ECB’s June easing package, on the other hand, are supportive of the Euro-area economy.
Unemployment bounced back somewhat in June after the stronger than expected reading in May. Seen over the last two years, it is very hard to spot any clear trend downward in unemployment, despite the clear trend upward in employment. Today’s number did not change this overall picture and the expected, future decrease in unemployment seems to continue to be very gradual.
South Korea presents stimulus package Reserve Bank of New Zealand lifts policy rate
The Chinese economy is currently in a cyclical upturn. But the long-term perspective has not changed. The economy will continue to readjust to the new normal, meaning that a significant pick-up of growth is unlikely.
German bonds take back earlier losses – yields to creep higher today. S&P 500 just manages to rise to new highs. China’s economy picks up steam. Bank of England not unanimous for too much longer? Russian sanctions on the agenda again. Euro-zone PMIs set to rebound.
The latest Euro Rates Update is now available
BoE minutes showed a unanimous monetary policy decision at the July meeting, but the differing views about the outlook are starting to emerge. The modest wage pressures mean that the Bank is not in any hurry to start to raise rates, and the first rate hike is not around the corner. The August monetary policy meeting and the inflation report will be interesting.
EU to limit Russian access to capital markets Minutes of BoE meeting due at 10.30
German yields rebound – US Treasuries end with a small rally. Core bond to remain supported today. Equities with clear gains. EU continues to advance with small steps with Russian sanctions. US inflation pressures remain limited for now. At least some easing in the Euro-zone deflation threat. New 30-year benchmark from the EFSF. BoE minutes and French business confidence ahead.
The overall trend of inflation remained subdued in June
Japanese government cuts GDP forecast Pro-Russian separatists hand over black boxes to Malaysia
Core bond yields edge further down – geopolitical tensions continue to support bonds. Equity markets feeling pressure. More sanctions on Russia in the pipeline. US inflation pressures finally picking up? Belgium to sell longer bonds.
Growing pressure for further sanctions against Russia Israel steps up ground offensive in Gaza
If you are just back from holiday, here are a few bullets on what happened while you were busy…
Bond yields end a bit higher, but near-term upside still limited. US equities with a clear rebound – resistance in sight. Money market rates rise on higher LTRO repayments. More warnings on markets being too optimistic. US inflation numbers and Euro-zone PMIs ahead. Supply action easing – more coupon and redemption payments ahead.
Is Europe next Japan? Hopefully not. ECB and releveraging implications for EUR.
US CPI inflation will be out on Tuesday . China and the Euro-zone will present PMI figures. On Friday the German Ifo indexes is released. The BoE will deliver minutes from the July meeting and UK GDP figures will be out on Friday
Passenger plane downed over eastern Ukraine Israel launches ground offensive in Gaza
Bonds continue to rally – yields in several semi-core countries hit record lows. Equities suffer a beating. Chinese home prices continue to fall. Geopolitical concerns take centre stage ahead of the weekend. German 10-year yield about to fall to new lows. Mixed US data – Bullard sees early rate hikes. No ABS purchases from the ECB for a long while. US consumer confidence and euro debate ahead.
@brannjames nope, not if stocks keep going higher which they will for now
EURGBP and EURNZD longs looking great. Last call.
So far good news > bad news. USD a sell.
Hopefully US bad news don’t get worse. That’s when USD would strengthen.
Yet another miss on housing…US and housing both leading.