Despite strong concerns at the start of the year, we believe that overall economic conditions are stabilizing, backed by a more aggressive policy stance, better fiscal supports, recovery of the real estate sector and credit growth, while consumers and the private sector have remained relatively resilient. Tail risks of a hard-landing in the near term are easing meaningfully. Continue reading →
The general market perception of the European economy is of a slow-growing, inefficient economy that would benefit greatly from structural reforms. It was therefore a considerable surprise when the Q1 2016 GDP released last Friday, showed that the Euro area had grown by 0.6% on a quarterly basis, or 2.2% on an annualised basis. This was the joint strongest in the currency economic cycle, and almost double what is widely considered the area’s trend growth rate, whilst expectations had been for a 0.4% print. Domestic demand appears to have been the big driver of the improvement, which bodes well for the economy going forward, whilst exports look to have slowed significantly – no real surprise given the state of the global economy. Bear in mind that the growth rate in the U.S. for the same period was only 0.5% quarter on quarter, so the Euro-area is out-pacing the U.S. Unfortunately, before the ECB could pat themselves on the back for a job well done, the latest inflation numbers showed that European inflation fell back into negative territory, printing at -0.2% for April, below market expectations. Equally disappointing was the fact that core inflation fell back to 0.8%, again below expectations and below the average for H2 2015. The complete lack of inflationary pressures will be a cause of significant worry to the ECB. Whilst inflation break-evens are currently at attractive levels, we still need to see some catalyst to push them higher before implementing any long positions.
The views expressed here regarding market and economic trends are those of Investment Professionals, and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of Pioneer. There is no guarantee that these trends will continue.
This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent. Before making any financial commitment regarding any issue discussed here, consult with the appropriate professional advisor.