Degroof Petercam: Volatility continues

For quite some time now financial markets are seeing lots of volatility. Investors seem to be worrying about several different factors at the same time including China’s slowdown and its impact on emerging markets, clear signs of hesitation in the US economy, the non-linear fall in oil prices and its disruptive effects, geopolitical risks and the handling of the European refugee crisis, uncertainty linked to future monetary policy as well as its effectiveness to boost demand, stretched equity market valuations, high private and public debt levels and so on. Importantly, the latest market turmoil is not only about China.

It’s widely accepted that a severe economic crisis in China is one of the most important risks again for this year. Our scenario that China will avoid a hard landing in 2016 remains in place even though the challenges that stem from rebalancing the economy loom large and hard landing fears are likely to continue to linger around. (https://insights.petercam.com/emerging-markets/crossing-the-chinese-river)

Downward risks remain substantial but we believe economic activity will not fall of a cliff against the back of loose monetary and budgetary policy and also lower energy prices. That said, our global composite confidence indicator shows clear signs of hesitation.

Despite the general very low level of commodity prices, base effects will send headline inflation higher in late 2016. Core inflationary pressures look set to remain modest, implying that global monetary policy will stay very loose in the foreseeable future.

The USD has appreciated significantly since the summer of 2014 and this has come with serious challenges. (https://insights.petercam.com/developed-markets/more-thoughts-on-the-state-of-the-world-economy)

Looking beyond the short-term, we think the chances of a prolonged period of relatively slow growth (in combination with interest rates around the ZLB) are high against the back of strengthening demographic headwinds and less scope for debt accumulation going forward. We would not agree that budgetary and monetary policymakers have lost all ammunition to fight this extremely challenging situation. At the same time, it is not clear whether policymakers are ready to think more ‘out of the box’ in this respect. (https://insights.petercam.com/developed-markets/unconventional-monetary-policy-pushing-on-a-string)

Der komplette Marktkommentar als PDF-Dokument.