Monday, October 12, 2015

Economic Summary for the week ended 11th Oct 2015

Last week saw a big bounce across almost all asset classes, with oil up close to 10%. As such oil related market outperformed (see huge moves in Norwegian and Indonesian equites or the rally in the Russian Ruble). In the current environment with enormous financial liquidity (from QE and low rates) but limited trading liquidity (given greater bank regulation), we think the distribution of market returns has changed. Positioning is crowded, volatility is generally lower, but tail risks are more significant. This perhaps helps to explain recent moves.
At a fundamental level, the global economy is characterised by consumer strength (from easy policy and lower commodities) and industrial weakness.On Tuesday, the IMF again lowered its global growth forecast for 2015 and 2016; there is a sense of déjà vu.

Tuesday, October 6, 2015

Economic Summary for the week ended 5th Oct 2015

The Euro Stoxx 50 is now lower than it was going into the final quarter last year. Back then Brent oil was trading at around $100, EURUSD was at 1.26 and investors were relatively optimistic with only 15% of them describing themselves as bearish.

Since then the European Central Bank (ECB) has started printing €60bn a month and said it is willing to add more if necessary, the Euro has weakened by around 10% and the oil price has more than halved. Yet 30% of investors now describe themselves as bearish, the highest proportion since 2012 and valuations are back down to their long term average. We think the low oil price, low euro, low borrowing costs, reasonable valuations and already weak sentiment will support European equities from here.