A bit of positive economic data has presented itself this week, marking an improvement in eurozone data albeit negative unemployment figures and PMI data out of Italy.
Germany continues to be the pillar of the eurozone recovery as unemployment data in the Deutsche state yesterday hit a new record low of 6.2 per cent, beating investor expectations of 6.3 per cent.
Expectations of a fresh round of quantitative easing (QE) by the ECB appear to have been priced in to markets since Mario Draghi’s last announcement, as European equity markets retreated slightly upon the release of yesterday’s positive overall Eurozone data.
Equities most likely sold off as expectations of an imminent extension to the QE package by the ECB were being pushed back to later into 2016. In fact, the retraction in European equity markets may have directly added to gains seen in European investment grade debt securities since the beginning of the week, most likely sparked by risk averse investors seeking ‘safe haven’ investment positions until market expectations stabilise.
The resurgence in the European debt market was most likely conditioned by bullish investor sentiment to the asset class, following the strong performance seen in global equities over the past week on the back of a surprise cut to negative deposit rates by the Bank of Japan.
Continued positive performance can be expected over the coming weeks as an increase in the number of US issuers of euro-denominated bonds is helping lift European debt issuance figures off a multi-decade low seen over January.
Despite falling European Industrial producer prices, dragged unsurprisingly by the energy sector, inflation growth in the Eurozone may not be too far off. With oil prices for one having run their course to lows of around $30 a barrel, the increased attempt of numerous countries to initiate talks with OPEC to curb production and reduce global supply seems to be gaining ground.
Should a deal be struck over the next quarter, I believe investors could adopt a bullish view towards financial markets, as halting the primary cause of volatility on global markets would remove the current eclipse on inflation expectations.
Should the energy and commodity crisis find a bottom and a dependable solution, I believe investors’ focus would shift towards the economic fundamentals. The release of back to back positive data figures in the Eurozone would prospectively be a big boost to consumer confidence and a global economic recovery.
Obviously, the global recovery is not solely dependent on the Eurozone, Emerging markets would be in pole to benefit from an end to the energy and commodity crisis and concurrently contribute to reviving global growth.
The solution seems simple, yet at pixel time oil continues to slide and US equities sell-off as investors sell riskier assets for government bonds during tumultuous times. OPEC needs to abandon its quest to control market share and contribute towards setting a bottom to the volatility in oil prices.
Should they be lenient, a recovery is well in sight.
Disclaimer: This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.