Saturday, 4 April 2015

A few Easter Saturday macro thoughts

Who enjoyed that little interlude on Good Friday with the non-farm payroll numbers?  As discussed yesterday they were hardly the strongest (link here).  What are the odds on another year of as the year goes on GDP downward revisions?

The non-farm payrolls certainly encourage a thinking towards 'lower for longer' which has made it rational at a certain level to buy bonds...except at the current tiny yields the risk-reward for such fixed principal investments is now surely pretty bad.  Nevertheless as these statistics show, 'investors worldwide poured $8.5 billion into fixed-income funds in the week ended April 1, marking the first three months of this year as the biggest first quarter for fixed-income inflows since 2001'

So current equity caution is driving an allocation preference?  Um...well there are not many equity bears either: 

Such are the outcomes maybe when mass QE is apparent and important parts of the world are still struggling - the average European economy for example has not recovered to its 2008 output level yet (even if you extrapolate out to 2016!)

That is not to say there is no impact from QE (as this report shows money supply expansion is helping to boost at the margin the European economy) but add on those FX related fears from the strong US dollar and the latest earnings data for this year for the S&P 500 looks rather shabby... push the US dollar now then...and stymie the European earnings level (which itself has reduced in growth terms by 5% points since 1 January already despite the strong US dollar...)
Not too many decisions out there...maybe everyone should join China's new Development Bank?  Pretty impressive join list so far.

The deadline to be an inaugural member is not too far off..

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