MacroScope

India share bulls running mainly on hope, well ahead of peers

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Indian stocks have rallied sharply over the last two months, soaring to record highs, although the bull run that began with expectations that Narendra Modi will become the country’s next Prime Minister may soon run out of road.

India’s top equity index, the BSE Sensex, was trading over 24,850 on Tuesday, having shot up over 10 percent since mid-April alone, when polling began, despite economic growth languishing below 5 percent, along with high inflation and interest rates.

With growth at just 4.7 percent, only a marginal improvement from the 10 year low plumbed in the previous financial year, the market could struggle in coming months, especially if the economic data continue to disappoint.

“It’s more about perception now,” said Neeraj Dewan, Director at Quantum Securities. “If you look at earnings, you would sell half the stocks.”

The rally undoubtedly started from anticipation that Modi would lead his Bharatiya Janata Party (BJP) to victory in the Indian general election, and possibly with a majority government.

U.S. growth back in bloom: most accurate Q1 GDP forecasters

PMost are convinced, including Federal Reserve Chair Janet Yellen, that the U.S. economy has already warmed up significantly from a growth deep freeze at the start of the year.

Business inventories were run down to nearly nothing in the first quarter, and were set for a rebound. There also is no sign that consumer spending is about to veer off its recovery path, especially with the job market gradually improving. All of that is likely to underpin better economic growth.

The question is by how much. Growth in the current quarter is forecast to be anywhere from 1.4 percent to 6 percent, according to a Reuters survey of 75 economists taken last week. That is the widest forecast range for U.S. economic growth in all Reuters polls in four years, except for one survey last April.

More hope than conviction for euro zone inflation rebound

ECB President Mario Draghi has a friend in euro zone economists of late. They tend to line up and take his view, at least when it comes to forecasting inflation.

There is no serious risk of deflation in the euro zone, nearly every one of them says, and from here onward, euro zone inflation will only be higher than the March trough of 0.5 percent.

That is the line you need to take if you are not yet willing to say that the central bank, which has chopped policy rates all the way to the floor, is more likely than not to print money to get out of the mess.

Euro will rally further, say the most accurate FX forecasters

The euro will rise even more, according to some of the top foreign exchange strategists who accurately predicted resilience in the common currency over the past year.

If it does, policymaking will get even tougher for Mario Draghi and the European Central Bank, who are already grappling with inflation at a four-year low and well below the bank’s target.

In 2013, the euro was the best performer among the majors, gaining almost five percent against the dollar, wrong-footing the consensus view in Reuters polls during that period.

Weather to make February jobs report a crap-shoot too

Blaming bad economic news on winter is getting as tiresome as tales of snarled traffic, flight cancellations and trips out with the snow shovel in freezing winds.

The February jobs report will be no exception to this U.S. season of climactic howling.

Most of the 97 forecasters who contribute to the Reuters Poll on non-farm payrolls have stuck to their forecasts, resisting the temptation to make last-minute changes based on even more disappointing data this week.

The UK economy – what a difference a year makes

This time last year, an imminent sovereign credit rating downgrade and a 1-in-3 chance of a new recession dominated talk on Britain’s economy.

To say 2013 turned out better than expected - at least by the simple yardsticks of economic growth and unemployment - would be an understatement, then, even if tepid wage growth, weak productivity and a rising cost of living still dog the economy.

None of the 63 forecasters polled by Reuters in Jan last year predicted that growth for the 2013 as a whole would hit 1.9 percent, as official data showed on Tuesday.

from Rahul Karunakar:

A December taper: a chance to regain lost face?

Dear Fed,

You should taper in December and regain lost  face.

Signed,

A growing but vocal minority of economists

 

Even if the latest Reuters poll consensus still shows the Federal Reserve will wait until March before trimming its monthly bond purchases, the clamor to do that in December - or rather later today - is rising.

Thirteen of 69 economists in the latest Reuters poll, almost one-in-five, now expect the Fed to start rolling back on their bond purchases in December: a sharp increase from the three of 62 in the previous poll.

Those economists forecasting the Fed to act on Wednesday said it would be a chance for the U.S. Federal Reserve to redeem its credibility after wrong footing market predictions in September.

Not bullish enough! How predictions for stocks in 2013 are turning out

The bulls were out in force again in Thursday’s quarterly Reuters poll of around 350 equity analysts – some 91.3 percent of forecasts for 20 major stock indexes predicted gains from here until the end of next year.

That might sound incredibly optimistic – but last year, on the whole, they weren’t optimistic enough.

Most striking is how the consensus completely missed the Nikkei’s near-50 percent rise. U.S. stocks have strongly outperformed the expectations too. On the other side, the emerging markets have been a big disappointment, especially Brazil.

Euro zone stock market investors: “Crisis? What crisis?”

European shares will be the best performers next year, according to the latest Reuters poll of more than 350 strategists, analysts and fund managers. Frankfurt’s DAX is already up nearly 20 percent this year and is forecast to rally another 10 percent in 2014.

But the experts in foreign exchange that Reuters surveys each month are also saying that the euro, just above $1.37, and not far off a two-year high against the dollar, will fall.

While both predicted outcomes may turn out to be true, the problem is that the flow of foreign money into European stocks is one of the reasons why the euro has remained so strong.

Another backhand volley from forward guidance

Forward guidance is quickly proving to be rather backward.

While it’s a favourite game of every punter who’s not paid to make predictions to trash the track record of those who are, just about everyone who follows the European Central Bank was stunned by the timing of its decision to cut rates on Thursday.

In the days beforehand, a handful of forecasters began speculating after news of a collapse in inflation that the ECB might fire what could be their last shot on standard monetary policy using interest rates in a long time.

But the vast majority were caught off guard by the ECB’s refinancing rate cut to a record low of 0.25 percent. Even those who thought it might do so didn’t think it would until December. The quick, violent fall in the euro showed it.