Even though US cliff talks remain unresolved, many of the edges have been taken off seasonal yearend jitters elsewhere. Euro pressures have been kept under wraps since the Greek deal, the possibility of yet another Fed QE manoeuvre next Wednesday is back in play and a significant pulse has been recorded in the global economy via the latest PMIs – thanks in large part to China and the US service sector.US payrolls loom again tomorrow, but the picture is one of stabilisation if not full-scale recovery.
All this has kept markets pretty calm with a positive tilt as investors parse 2013. The Greek deal has proved to be a very important juncture for the euro zone, with Italian 10-year yields down yet another 14bp Wednesday-to-Wednesday. The parallel recentr lunge in Spanish yields backed up a few notches after this week’s auction disappointed some traders. Yet even here the relative ease with which a supposedly-cornered Madrid raised more than 4 billion euros for next year’s coffers keeps the financial side of their crisis, if not the economic one, in context for now at least.
Elsewhere, the past seven days saw the euro surging again – partly a result of a mega euro/Swiss jump after Credit Suisse’s decision to charge for franc deposits – negative interest rates in the cold light of day. What that also shows again this year is the danger of betting against central banks. Even though the world and it’s mother were betting against the euro against the Swiss franc all year, the SNB remains successful so far in capping the franc at 1.20. Like the ECB and the Fed – it means business. Once committed, the central banks will not change tack without a dramatic shift in thinking. Perhaps in tandem, gold has continued to drift lower.
Global equities are up another 1.5 percent over the past week, although – somewhat oddly – core bonds in Germany and the US have pushed higher too. The latter could be explained by renewed Fed expectations, the former can only be due to some temporary year-end demand for liquid safety — even if that’s not yet obvious in other markets such as Swiss franc or gold. But with volumes so low, it’s still possible we could see a bit more of this over the final weeks of the year – as YTDs in many markets remain punchy – still 10-20 pct at least in big index plays on western stock markets, emerging debt and equity and high-yield bonds and some peripheral euro bond markets etc.
Offsetting any pullback on the other hand between now and Christmas is the growing feeling – made clear in our 2013 Investment Outlook summit coverage last week — that there is some healing of the world economy underway and one that may take shape next year. The November all-industry global PMI, for example, jumped to 53.7 – that’s its highest since March and consistent with global GDP growth of about 2.5%, according to JPMorgan… still below trend but a decent bounceback from where we were in early Autumn.