Market news | 16 November, 2017

Economic fragility despite of positive figures

Alberto Villasán Investment and Markets Director

The good macroeconomic figures continue…

Most of the developed countries continue publishing positive macroeconomic figures and those reflecting growth and economic activity in particular. This could have an important effect on the trend in global financial asset prices.

… which are affecting the financial markets

The first effect of the favourable financial situation is the positive trend in the listing prices of the sectors and companies most closely tied to the economic cycle, such as Energy, Commodities and Financials.

Although another effect, much less beneficial, is that the strong economic figures are fuelling rate hikes by the Federal Reserve. This cause bond prices to drop for both government and corporate issues.

Although the underlying situation of the economy is more fragile than we think…

Despite the favourable economic figures, we must not forget that the situation underpinning the global economy is structurally fragile due to high debt levels and falling demographic trends.

We cannot rule out another recession if official rate hikes continue over time.

Without inflationary pressures and with growth rates which, while positive, are well below those reached in the past, the true reason behind the Federal Reserve’s restrictive economic policies is the need to neutralise bubbles in major asset valuations.

… which could represent an excellent medium-term investment opportunity

We think that said hikes in official rates could create an opportunity for medium-term US sovereign bonds purchases, because they would be among the few global assets to perform well in the event of an economic crisis.