Market sentiment is as important as data sets while making investment decisions.
Previously, the plunges in global markets led to extremely low levels of market sentiment.
But in recent days, bright spots are emerging in some markets or sectors.
Given the volatility in global markets and its negative impact on US economic growth and inflation, uncertainty about the US Federal Reserve’s interest rate policy has increased.
The market now expects a slimmer chance of the Fed increasing the interest rate this year.
Investors should notice that, although a delay in interest rate increases by the Fed will usually boost market performance, the present focus is on the negative factors.
Once market sentiment improves, we may see another round of easing measures.
Meanwhile, there’s an increasing possibility that the corporate earnings outlook for 2016 may be worse owing to a poor macroeconomic situation.
As oil prices remain low, banks’ earnings are under heavy pressure.
Earnings of US companies may experience a second year of zero growth, if not decline.
The market now believes earnings of US firms will grow by 4 percent, while those of European firms will rise 6 percent.
So, from a fundamental perspective, Europe may be more attractive than the United States, because at least we can expect the European Central Bank to launch more easing measures.
US treasury securities continued to provide returns amid volatility in the market last week.
They are assets for the risk-averse, like the Japanese yen.
Previously, the interest rate on German 10-year treasuries fell to about 0.2 percent, and that on the Japanese equivalent to zero, which means US treasuries still offer attractive returns.
The US price of crude oil fell to as low as US$27 per barrel recently owing to concern about high inventories.
Only when all the big oil-producing countries agree to reduce output will oil prices stabilize.
But it seems negotiations have bogged down.
Although I have forecast that the price of oil may rebound in the second half, short-term factors may drag it down to a support level of about US$25 per barrel.
This article appeared in the Hong Kong Economic Journal on Feb. 18.
Translation by Myssie You
[Chinese version 中文版]
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