One feels that the trends that were set at the end of last year are back in place, at least for now. Equity markets drift higher, technology stocks continue to make new highs. Companies such as Microsoft which for many years have been ignored by analysts as boring are now being talked about as the first trillion-dollar company. Tariffs along with other concerns such as Turkey, Argentina, Brexit and Chinese growth are currently away from the radar screen. This week’s release of Purchasing Manager Surveys would suggest economic growth remains solid if unspectacular. Year on year growth third estimate for the eurozone remains at 2.5%.
Investor sentiment appears neither greedy nor fearful, at least on the available data. The Vix index continues to trade close to historic lows. Many of the causes for concern, Italy as an example probably have not gone away its just equity markets have stopped focussing on them. Italian ten-year bond yields retreated for a while, however, have climbed back to 2.9%. German ten-year yields remain below 0.5% when you can get close to 3% in America for the same maturity. That would continue to demonstrate that out there somewhere European consolidation fears continue.
Along with oil, commodity prices, in general, have been climbing higher, even in the face of a rising dollar. Central bankers seem relaxed with inflationary pressures at present. Most suggest they would be happy to even let inflation climb above the 2% target in the near term before getting too twitchy on the interest rate trigger finger. There are also signs of wage growth in developed economies, these two factors probably contribute more to inflationary pressures than any others.
Aside from the US, interest rates around the globe must tighten from here as they have no real another place to go. Any suggestion they could need to go lower would suggest some real concerns. The pace of the rises will be the question. Too slow and excessive risk-taking could push us back into a 2007 style event, too fast and that could bring growth to a quick halt.