Whilst all focus was on the Fed last week, some important European data points will be released this week. Eurozone consumer confidence is released on Tuesday and PMIs on Wednesday.Consumer confidence is close to pre-crisis highs but we believe it can rise further in the medium term. Eurozone unemployment has been falling steadily over the last two years and is now showing signs of falling at a faster pace. The chart below shows that the change in the unemployment rate is closely linked with consumer confidence. As consumer confidence increases consumers spend more, which boosts the economy and reduces unemployment. This in turn further boosts consumer confidence creating a virtuous cycle. This positive feedback loop still has plenty of room to run in the Eurozone given that unemployment remains very high and therefore has the potential to fall much further.
Monday, September 28, 2015
Sunday, September 20, 2015
Eurozone GDP was revised up this week showing that the eurozone grew 1.5% year on year in the second quarter. The underlying data showed a continued recovery in domestic demand and net exports.
Whilst the European Central Bank recently revised down their GDP growth forecasts slightly, they still expect 1.7% growth in 2016. They have also highlighted that they are willing to expand their Quantitative Easing (QE) programme if necessary to support growth and inflation. Even without further easing, money supply has been picking up strongly and suggests that GDP growth should remain well supported. With money supply and the economy picking up, and the EuroStoxx 50 down near where it was when Draghi first announced QE back in January, this would suggest that European equities have upside potential from here.
Sunday, September 13, 2015
The FTSE All Share is down nearly 10% since May. As the school holidays draw to a close and investors return from their summer breaks, it’s worth noting that intra-year corrections of this magnitude are the norm rather than the exception. In 17 of the last 25 years the last four months of the year have delivered positive returns, with the average return in those positive periods being 8.0% for the FTSE All Share. We don’t believe this market selloff is the precursor to a recession and, if we’re right, history suggests there is money to be made before the New Year.
Tuesday, September 1, 2015
Volatility hit record highs: both the S&P 500 VIX and Euro VSTOXX peaked at 40.8 compared to respective five year averages of 17.5 and 23.0. These global equity drawdowns were not foreseen, and some portfolios did suffer losses, but it is important to remember the long-term. If an investor had stayed fully invested in the MSCI ACWI over the past 14 years, their returns would be over 180% — yet, if this same investor had missed even just the 20 best days of the ACWI’s performance, their investment would be in the red. Keep calm and stay invested.