Global Investing

Devil and the deep blue sea

Ok, it’s a big policy week and of course it could either way for markets. An awful lot of ECB and Fed easing expectations may well be in the price already, so some delivery would appear to be important especially now that ECB chief Mario Draghi has set everyone up for fireworks in Frankfurt.

But if it’s even possible to look beyond the meetings for a moment, it’s interesting to see how the other forces are stacked up.

Perhaps the least obvious market statistic as July draws to a close is that, with gains of more than 10 percent, Wall St equities have so far had their best year-to-date since 2003. Who would have thunk it in a summer of market doom and despair.  Now that could be a blessing or a curse for those trying to parse the remainder of the year. Gloomy chartists and uber-bears such as SocGen’s Albert Edwards warn variously of either hyper-negative chart signals on the S&P500, such as the “Ultimate Death Cross”, or claims that the U.S. has already entered recession in the third quarter.

On the other hand, the economic data isn’t playing ball with doomsters, as can be seen in Thursday’s latest U.S. consumer and business confidence readings as well as the latest house price data. What’s more, the closely watched Citigroup Economic Surprise index, though still in negative territory, is turning higher again as a result amid some hopes for at least a midyear fillip in manufacturing worldwide. Of course surprises are only relative to expectations. But then sufficiently lowered expectations are no bad thing in a marketplace attempting to discount all available information. It’s true too of the ongoing U.S. earnings season, where there had been a sharp downgrade of forecasts in the weeks leading up the corporate reports.  Thomson Reuters data shows that of the 303 firms in the S&P500 who have already reported Q2 earnings, some 66 percent are above analysts expectations — just shy of the average of of the past four quarters of 68 percent.

There is the hoary old argument that lukewarm economic signals will prevent the Fed from moving soon again on QE3, in part because the bar may be higher in an election year. But that just throws us back to the policy arena yet again and we promised to step aside from that for now!

Three snapshots for Thursday

OECD growth forecasts released today show the euro zone countries lagging behind other G7 countries:

Reuters latest asset allocation polls showed global investors cut government debt from portfolios in March:

Germany’s unemployment rate fell to a record low of 6.7% in March, bucking the trend in other euro zone countries:

from Jeremy Gaunt:

And the investor survey says…

Reuters asset allocation polls for August are out. They show very little change from July, which suggests investors are still cautious and uncertain about what is happening.

One big difference, month-on-month, was a large jump into investment grade corporate debt.  Andrew Milligan of Standard Life Investments reckons this  may in part  have been because  sovereign debt rallied so much over summer that returns from government bonds are now too meagre.

Here is the big picture:

Poll

Are investors building for a fall?

Reuters has taken its monthly snapshot of the investment choices of leading fund management houses across the world. At the end of July, the picture painted was one of investors embracing risk and shutting down their safest holdings.

Equity holdings as a percentage of a typical balanced portfolio were at their highest since the end of August last year, just a couple of weeks before Lehman Brothers collapsed. Here is what has been happening to equity holdings this year: 

At the same time, cash holdings have been cut back drastically. They are now at a level last seen in May 2007.  Here’s what that looks like: