Weekly Radar: Watch the thought bubbles…

May 9, 2013

Far from the rules of the dusty old investment almanac, it’s up, up and away in May after all. And judging by the latest batch of economic data, markets may well have had good reason to look beyond the global economic ‘soft patch’ – with US employment, Chinese trade and even German and British industry data all coming in with positive surprises since last Friday. Is QE gaining traction at last?

Well, it’s still hard to tell yet in the real economy that continues to disappont overall. But what’s certain is that monetary easing is contagious and not about to stop in the foreseeable future – whether there’s signs of a growth stabilisation or not. With the Fed, BoJ and BoE still on full throttle and the ECB cutting interest rates again last week, monetary easing is fanning out across the emerging markets too. South Korea was the latest to surprise with a rate cut on Thursday, in part to keep a lid on its won currency after Japan’s effective maxi devaluation over the past six months. But Poland too cut rates on Wednesday. And emerging markets, which slipped into the red for the year in February, have at last moved back into the black – even if still far behind year-to-date gains in developed market equities of about 16%!

Not only have we got new records on Wall St and fresh multi-year highs in Europe and Japan, there’s little sign that either this weekend’s meeting in London of G7 finance chiefs or next weekend’s G20 sherpas gathering in Moscow will want to signal a shift  in the monetary stance. If anything, they may codify the recent tilt toward easier austerity deadlines in Europe and elsewhere. But inevitably talk of unintended consequences of QE and bubbles will build again now as both equity and debt markets race ahead , even if the truth is that asset managers have been remarkably defensive so far this year in asset, sector and geographical choices …  one can only guess at what might happen if they did actually start to get aggressive! Perhaps the next pause will have to come from the Fed thinking aloud again about the longevity of its QE programme — so best watch those thought bubbles!


Next week’s big data and events:

G7 finance ministers and central bank governors meet in London Sat

EBRD meeting in Istanbul Sat

Pakistan general elections Sat

Bulgaria parliamentary elections Sun

China April Industrial output/retail sales Mon

France/Italy bond auctions Mon

Euro group meeting Mon

US April retail sales Mon

Indonesia rate decision Tues

EZ March industrial production Tues

German May ZEW sentiment Tues

ECOFIN meeting Tues

UK 5-yr gilt/Japan 30-yr JGB/Dutch DSL auctions Tues

EZ/DE/FR/IT flash Q1 GDP Weds

UK April jobless Weds

Iceland rate decision Weds

Greek PM Samaras in China Weds

Japan Q1 GDP Thurs

UK 30-yr gilt/Japan 5-yr JGB auction/German 2-yr auction Thurs

Spain’s Rajoy meets with unions on pension reforms Thurs

Draghi speech Milan Thurs

US/EZ April CPI Thurs

US April housing starts/permits, May Philly Fed index Thurs

Turkish rate decision Thurs

Turkey’s Erdogan in Washington Thurs

G20 sherpas meeting in St Petersburg Sat/Sun


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