Markets Rally Highlights Bets on Recovery

Date: 10‑01‑2021

Source: The Wall Street Journal

Optimism about Covid‑19 vaccines and stimulus prolong the 2020 stock boom, fueling worries that hot parts of the market are overextended

Electric‑car maker Tesla is up 25% this year.

Investors are showing signs of increasing exuberance, reflecting optimism about a vaccine‑fueled global recovery and the changed economics of the post‑coronavirus world.

The Dow Jones Industrial Average rose 1.6% for the first week of 2021, marking its fourth‑straight weekly gain despite a mob storming the U.S. Capitol Wednesday and a decline in nonfarm payrolls reported Friday.

The advance, which took the 30‑stock index past 31000 in just 29 trading days, has been led by banks and energy firms. Bond yields have risen, taking the yield on the 10‑year U.S. Treasury note to 1.105%, the highest since March.

Soaring Metals Prices Signal Bets on Global Economic Recovery

Date: 06‑12‑2020

Source: The Wall Street Journal

Soaring Metals Prices Signal Bets on Global Recovery

Hopes for vaccines and stimulus are boosting investor sentiment as part of a vast market rally Hopes for vaccines and stimulus are boosting investor sentiment as part of a vast market rally

Chicago‑based Imperial Zinc charges zinc slabs and scrap in a furnace, melts them and pours the molten metal into ingots.

Investors are piling into wagers on industrial metals like copper and nickel, betting that coronavirus vaccines and stimulus programs will drive a boom in manufacturing activity as part of a global economic resurgence.

Prices for copper have risen to their highest level in almost eight years. Iron ore, the main ingredient of steel, is one of the best‑performing assets in 2020. Other raw materials, such as aluminum and zinc, have added roughly 15% since the end of September and 40% or more since mid‑May. And shares of metals producers, including Freeport‑McMoRan Inc. and Century Aluminum Co. , are on a tear, climbing alongside other stocks closely tied to economic growth.

U.S. Economy Faces Projected 10‑Year Recovery From Coronavirus Effects

Date: 02‑06‑2020

Source: The Wall Street Journal

Surveys of purchasing managers in U.S., Asia and Europe offer some hope that decline in factory activity is starting to bottom out

The U.S. economy could take the better part of a decade to fully recover from the coronavirus pandemic and related shutdowns, a U.S. budget agency said, as a series of surveys pointed to continuing weakness in global manufacturing.

The Congressional Budget Office, a nonpartisan legislative agency, said the sharp contraction triggered by the coronavirus caused it to mark down its 2020‑30 forecast for U.S. economic output by a cumulative $7.9 trillion, or 3% of gross domestic product, relative to its January projections. GDP isn’t expected to catch up to the previously forecast level until the fourth quarter of 2029, the CBO added.

 The roughly $3.3 trillion in stimulus programs enacted by Congress since March will only “partially mitigate the deterioration in economic conditions,” the CBO said.

“After you get the initial bounce of economic activity simply from removing the lockdowns, I think what we’ll see is an economy that is running at a level of activity notably below where we were prior to Covid,” said Michelle Meyer, chief U.S. economist at BofA Merrill Lynch. “It’s going to take a long time to heal. There will be scars as a result of such a painful shock of the economy.”

The CBO analysis came as new surveys showed that factories in the U.S. and abroad continued to reduce output and shed jobs in May, though the pace of deterioration moderated as governments moved to ease coronavirus‑related restrictions on their economies.

Trump May Kill the Global Recovery

Jul 18, 2018 Nouriel Roubini, Project Syndicate

Nouriel Roubini, a professor at NYU’s Stern School of Business and CEO of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

In a sharp departure from this time last year, the global economy is now being buffeted by growing concerns over US President Donald Trump’s trade war, fragile emerging markets, a slowdown in Europe, and other risks. It is safe to say that the period of low volatility and synchronized global growth is behind us.

NEW YORK – How does the current global economic outlook compare to that of a year ago? In 2017, the world economy was undergoing a synchronized expansion, with growth accelerating in both advanced economies and emerging markets. Moreover, despite stronger growth, inflation was tame – if not falling – even in economies like the United States, where goods and labor markets were tightening.

Stronger growth with inflation still below target allowed unconventional monetary policies either to remain in full force, as in the eurozone and Japan, or to be rolled back very gradually, as in the US. The combination of strong growth, low inflation, and easy money implied that market volatility was low. And with the yields on government bonds also very low, investors’ animal spirits were running high, boosting the price of many risky assets.

Why Economic Recovery Won’t Defeat Populism

Andrés Velasco, a former presidential candidate and finance minister of Chile, is the author of numerous books and papers on international economics and development. He has served on the faculty at Harvard, Columbia, and New York Universities.

Jan 25, 2018 Andrés Velasco, Project Syndicate

During the last few years, a lively debate has taken place between advocates of economic and political/social explanations of populism. The issue is far from settled, but even if the economic explanation is right, it does not follow that the current global recovery will make much of a political difference.

SANTIAGO – Markets, like the pundits meeting in Davos this week, are hopeful: the world economy is well on its way toward a balanced and perhaps sustained recovery. With the economy on the mend, will politics follow suit?

For people who view the surge in populism around the world as an aftershock of the global financial crisis, the answer is yes. As unemployment falls and middle-class incomes begin growing, the populist temptation will wither, or so they hope.

If only it were that simple.

Europe’s Doom Loop in Reverse

Daniel Gros is Director of the Brussels-based Center for European Policy Studies. He has worked for the International Monetary Fund, and served as an economic adviser to the European Commission, the European Parliament, and the French prime minister and finance minister. He is the editor of Economie Internationale and International Finance.

Jan 15, 2018 Daniel Gros, Project Syndicate

Unlike before the 2011-2012 crisis, the eurozone seems to be locked in a benign credit cycle, in which lower risk premia allow both banks and governments to refinance at lower rates, more credit is available for the real economy, and the resulting recovery increases government revenue. But how long can this cycle persist?

BRUSSELS – During the 2011-2012 euro crisis, the currency area became mired in a “doom loop,” in which weak banks in financially distressed countries rationed credit, causing a recession that intensified pressure on government finances, which were already burdened by the need to cover banks’ losses. But such self-reinforcing spirals can also operate in the opposite direction. Understanding these dynamics may be the key to determining the eurozone’s relative strength today.

In a doom loop, the expectations of default drive up risk premia until the economy reaches the brink of collapse, even if the underlying problems could be managed over time. At a certain point, when the gulf between financial-market pessimism and economic reality becomes too large, the market becomes ready for a reversal.

Betting On A Greek Recovery?

Wednesday, December 13, 2017, Observing Greece

Having just finished our regular 3-month autumn stay in Greece, it’s a good time to reflect on the impressions I could gather and what may be in store for Greece until we return there next spring. Obviously, the all-important questions are: Has Greece really turned the corner (economically, that is)? Are we perhaps witnessing the beginning of an accelerated turn-around? In short: has the time come to bet on a Greek recovery?

There have been different views in recent months. Some, like the reputable American investor Kyle Bass, predicted that „investors are getting ready to pour billions back into the Greek economy„. Others considered talk about Greek economic recovery as „fake news in action„. Today, it was Bloomberg who headlined an article „Betting on the Greek Recovery.“

What stands out is that all commentators focus on the macro-side of things: Will Greece successfully exit the program? Will Greece be able to return to markets? Will yields on Greek bonds decline further? Are bank shares rising? Do banks report profits? Etc.

Record Earnings Boost Confidence in Global Markets Rally

Date: 05-12-2017
Source: The Wall Street Journal

Earnings per share hit new high, underscoring broad economic recovery

Listed companies are at their most profitable on record after a bumper year of earnings growth across global equity markets.

The earnings-per-share of a FactSet index of over 20,000 listed companies from around the world has now reached an average of $9.69, increasing nearly 19% in the last year.

That is the fastest year-over-year rise since 2011, surpassing the late-2014 high of $9.55. While the FactSet data only stretch back to 2001, increased earnings in emerging markets like China, among other factors, mean that the per-share level has likely never been higher.

The Eurozone’s Challenge: Don’t Waste the Recovery

Date: 16-10-2017
Source: The Wall Street Journal By Simon Nixon

The bloc’s robust recovery is an opportunity to strengthen its resilience to future shocks—but will governments grasp it?

French President Emmanuel Macron, and German Chancellor Angela Merkel have different priorities when it comes to reforming the eurozone’s architecture.

The International Monetary Fund had a clear message for economic policy makers gathered in Washington for its annual meetings last week: don’t waste a recovery. The global economy is enjoying a robust upswing, so governments should fix the roof while the sun is shining.

It was a message directed particularly at the eurozone. The strength of the currency bloc’s recovery has taken almost everyone by surprise, not least the IMF, which upgraded its forecast for eurozone growth in 2018 by 0.2 percentage point to 2.1% compared with its July forecast, putting it on a par with the U.S. This recovery is both broad-based, spanning all countries and sectors, and well-balanced—with household spending, exports and investment all playing their part.

What’s Really Behind the Eurozone’s Economic Turnaround

Date: 14-08-2017
Source: The Wall Street Journal By Simon Nixon

Many economists may have underestimated the role of improvements to the supply side of the eurozone economy

It is now four years since the start of the remarkable Spanish economic recovery. Yet at the time, few saw it coming. Back in July 2013, the International Monetary Fund forecast that it would take until 2018 for Spanish economic growth to barely scrape above 1% while unemployment would remain above 25% for five years.

In fact, the Spanish turnaround had already begun: Growth exceeded 1% in 2014 and has been above 3% ever since. In that time, Spain has created more than two million jobs, bringing the unemployment rate down from a peak of 26.2% to an eight-year low of 17.2% today.