One of the more bizarre aspects of the euro zone crisis is that the currency in question — the euro — has actually not had that bad a year, certainly against the dollar. Even with Greece on the brink and Italy sending ripples of fear across financial markets, the single currency is still up 1.4 percent against the greenback for the year to date.
There are lots of reasons for this. The dollar is subject to its country’s own debt crisis, negligible interest rates and various forms of quantitative easing money printing — all of which weaken FX demand. There is also some evidence that euro investors are bring their money home, as the super-low yields on 10-year German bonds attest.
There is little doubt that the latest U.S. earnings season has been a good one for long-equity investors. Thomson Reuters Proprietary Research calculates that with 67 percent of S&P 500 companies having reported, EPS growth — both actual and that still forecast for those who have not filed yet — has come in at 36 percent.
Furthermore, a large majority of the reports have surprised on the upside, as they like to say on Wall Street. Some 75 percent of reports have been better than expected. Not surprisingly, the S&P index gained around 6.9 percent in July and is up another 1.7 percent in the first two trading days of August.
It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier, Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.
Now comes Jim O’Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit: