Investors were on the edge of their seats this weekEquity markets showed extreme movements, triggered by the unfolding currency crisis in Russia, the fall in oil prices and the situation in Greece. Although we are experiencing a bumpy ride towards year-end, we do not believe that this is the beginning of a bear market. In fact, equity markets recovered strongly in the last few days.
Financial markets, led by European stocks, have corrected over the past five days. Since the beginning of December, the EURO STOXX 50 Index has lost close to 9%. We do not believe that this is the beginning of a bear market.
Continued recovery is expected in 2015, supported by low oil prices, a strengthening US dollar, less focus on fiscal austerity and central bankers who are vigilant guardians of growth. In our Investment Outlook, Moving Forward in 2015, we provide more insight into what we expect in the year ahead.
In 2015, ABN AMRO Private Banking expects the world economy to grow and the US expansion to broaden and to reach the shores of the eurozone and Japan. Lower energy prices will provide a boost to consumers and companies and a weaker euro and Japanese yen will complement the quantitative easing already well underway by the European Central Bank and the Bank of Japan.
The US is strengthening and growth in Europe is expected to pick up through the end of the year. A slow eurozone recovery appears to be in place, with a number of tailwinds, such as low oil prices, supporting growth.
Central banks worldwide continue to drive the financial markets. The OPEC moved financial markets up by its decision to stick to its oil production limit, although this decision also signals a lower eurozone inflation. In the US, on Black Friday, the day after Thanksgiving, the holiday shopping season started, for which the expectations are high.
Financial markets were inspired by the news that China cut its benchmark interest rates for the first time since July 2012, and the European Central Bank may widen its asset-purchasing programme, if necessary, with government bonds. The positive sentiment was further supported by the news that the German ZEW index rose this week for the first time in ten months. The US Federal Reserve (Fed) is on track for an initial rate hike in mid 2015, although the Federal Open Market Committee (FOMC) has mixed views on this.
This week bond investors grew concerned about a slowdown in China, a slow recovery in Europe and low oil prices. Although the economies of China and Europe are growing at a lower pace, we expect the eurozone to improve in the next quarters and the Chinese economy to grow by 7% in 2015.
Financial markets have continued their way up. This was supported by a stronger dollar versus the euro and strong macroeconomic data from the US. Moreover, markets were under the spell of announcements on further stimulus measures of the European Central Bank (ECB). Energy related stocks, however, were volatile.
It is fitting that on Halloween the forces that had spooked the market are in retreat. Equities are recovering their losses and the US economy is finally coming back to life. There was also a ‘trick or treat’ surprise, as Bank of Japan expanded monetary stimulus.
