The probability that there is another leg up for global equity markets is bigger than a significant correction in the near-term. However, there are no guarantees when it comes to investments in stocks in contrast to, as somebody said, the purchase of a vacuum cleaner. In case that the earnings momentum is cooling down or, for example, the macro-backdrop deteriorates, an extended period of equity markets going sideways or a correction cannot be excluded.
Economic growth has increased significantly on a global scale and is broadly supported. According to our preliminary estimate, global GDP recorded a growth rate of 3.7% from Q1 to Q2 (annualised). While the developed economies have presumably grown by 2.7%, the emerging economies posted a growth rate of 5.2%. In this article, we would like to take a closer look at the emerging markets on the basis of classic economic indicators.
Did VW, Audi, Porsche, Daimler, and BMW collude to form a cartel? Did they deliberately try to suspend competition? The media seem to have discovered a violation of anti-trust law, and their research suggests a link between the diesel emissions scandal and the agreements reached in joint task groups.
Some ten years after the outbreak of the Great Recession, global economic growth is positive and broadly based, inflation is low in the developed economies and falling in important emerging economies, and monetary policies are very supportive, cautious, and predictable. At the same time, company earnings growth has increased significantly, and the volatilities of many asset prices are low. This environment is generally positive for risky asset classes.
I will be upfront about it: to me, the Taylor rule is still a helpful tool to assess the future monetary policy of the US central bank. However, it should not be used as blueprint without thinking it through. Instead, it should be seen as heuristic tool that helps structure one’s analysis.