Let the trend be your friend

The trend they say is your friend, well at present the trend remains up. Concerns within Europe over Greek debt, which has caused serious market turmoil in years gone by, appears largely ignored. It is almost as if investors decide that a compromise is always found as the stakes are too high for any alternative.

We were surprised that, despite the upcoming events within Europe, and the continued need for Greece to receive financial support, that Europe did not feature in January’s Merrill Lynch Fund Manager Survey ‘s list of tail risks. We did speculate that would not last long, and now Europe is back in the headlines, the results of the latest survey released on Tuesday reported that Europe is again on the fund managers radar. However, this did not stop fund managers reporting allocation to Eurozone equities rising to an 8-month high.

Europe remained in focus on Tuesday morning after a mixed bag of economic data from the region. Germany’s ZEW sentiment indicator reported a surprise drop-in sentiment, probably caused by concerns over upcoming elections.  Athens reported the Greek economy shrank by 0.4% in the fourth quarter of 2016, which could possibly add to the creditors woes, and further support the IMF’s position that the debt burden is too great for the country to bear. Economic growth for the European region overall in the fourth quarter and for the year of 2016 was revised down. German inflation climbed to 1.9% year on year for 2016. Should inflation continue to pick up in Germany and growth disappoint this could put further strains to its relationship with the ECB. Finally, there was some good news from the region as Italy’s economy grew at the fastest rate since 2010.

UK inflation likewise picked up in January, and is now fast approaching the Bank’s target of 2%. Mr Carney may soon be writing to the Chancellor explaining why it has passed the 2% target. A clear example of what impact sterling’s weakness is having at the factory gate, input prices rose 20% year on year, output prices just 3.5%.

Finally, Janet Yellen appeared at her semi-annual testimony before congress on Tuesday. She painted a picture of a global economy that continues to grow, and a US economy growing with it, at a moderate pace. She reiterated that more policy adjustments will likely be needed if the economy remains on track. The Fed chair appeared to paint a rosy picture, and this Goldilocks’ scenario boosted U.S equities once again.  The bond market moved slightly more in favour of March for the month of the next rate hike.

Posted on February 15, 2017 .