Markets down in the dumps
Equity markets appear to be stuck in a rut as investors find it hard to shake off prevailing negativity. Markets are fixed on a view that oil and commodity prices will never rebound and that the bank’s business model is broken due to over regulation and weaker economic growth.
We think too much risk has been priced in, and there is the potential for upside surprise. A few factors point to this. There are signs of a rebound in oil prices. Improving economic signals are coming out of China and fears of a Chinese devaluation are reducing; and also a weaker US dollar.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 13 Apr 16
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Equity markets appear to be stuck in a rut as investors find it hard to shake off prevailing negativity. Markets are fixed on a view that oil and commodity prices will never rebound and that the bank’s business model is broken due to over regulation and weaker economic growth.
We think too much risk has been priced in, and there is the potential for upside surprise. A few factors point to this. There are signs of a rebound in oil prices. Improving economic signals are coming out of China and fears of a Chinese devaluation are reducing; and also a weaker US dollar.Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
We think too much risk has been priced in, and there is the potential for upside surprise. A few factors point to this. There are signs of a rebound in oil prices. Improving economic signals are coming out of China and fears of a Chinese devaluation are reducing; and also a weaker US dollar.
It is still all about currencies however. Many market commentators have torn up their currency forecasts for the year as things are not panning out as expected. It wasn't so long ago that the consensus was that the US Dollar would remain strong as the US continued to tighten whilst Europe and Japan carried out further easing.
But now the perception seems to be that US interest rates will remain low for a much longer period, whilst Europe and Japan are assumed to have scope for further easing.
Ultimately, this is a problem for Japan. Surely the Yen needs to remain substantially "under-valued" in order to overcome the headwinds of adverse demographics, low GDP growth, and deflation. The strong Yen means the Bank of Japan may have to fight back with further monetary easing.
Strength in the Yen and Euro significantly reduces the risk that China will need to devalue its currency.
So what does all this mean for equity markets?
Across the board, markets are pricing in the worst even though signs are improving.
The US earnings season begins in earnest this week. Any upside surprise in earnings; or CEO outlooks could cause the rally we have seen in US equities since February 11th to continue.
The Japanese market will remain subdued until we see a turn in the Yen, which will either come from Bank of Japan intervention or more monetary stimulus.
The Australian market will also likely remain subdued until the markets fall in line with the reduction in fears associated with China and commodity prices. The banks, however, will continue to provide a headwind as will the general election and stronger Yen.