Across the
globe, securities markets and business surveys are registering rising
optimism and falling global risk for investors, the Wall Street Journal reports. Among the positive signs: a
rebound in oil prices, improving economic growth in China and
Europe, slowly rising inflationary expectations and
moderate increases in interest rates.
On the
political front so far, President Donald Trump’s tough talk on trade has not
produced actual protectionist measures, the Journal notes. Instead, his focus
has been on regulatory rollback and fiscal stimulus, initiatives that are
likely to have positive spillover effects abroad. Indeed, Trump has made
positive comments about U.S. trade with Canada and Japan, and talks
are reportedly underway to strengthen trade ties with the U.K.
Halting Deflationary Trends
Until recently,
many investors and economists feared that economically
destructive deflation was on the rise amid depressed major commodities prices and
central banks' effort worldwide to push interest rates to near-zero or
negative levels to provide stimulus, the Journal notes. That view is changing.
As deduced from rising bond yields, investors are now projecting annual
inflation between five and ten years from now to be about 2% in the U.S. and
Europe, and about 0.6% in Japan. All these figures
are roughly 0.5% above where they were in July, the Journal says.
A major
contributor to increased inflationary expectations has been the rebound in oil
prices, the Journal observes. After falling below $30 per barrel last year, oil
prices have risen above $50 since OPEC members agreed to cut production
in the fall.
Improved Economic Outlook
The Journal
cites several upbeat forecasts. JPMorgan Chase & Co. (JPM) projects that the
global economy will grow about 3.4% in 2017. Independent investment banking
advisory firm Evercore ISI sees 11% nominal GDP growth (on an
annualized basis) in China for the first quarter, up from 7% in the same period
a year ago. Finally, private equity firm Carlyle Group sees strength in Europe
from stable domestic economies and a pickup in exports.
Strengthening
economies and a halt in deflationary trends are
giving central banks the confidence to curtail bond buying andthus allow interest rates to rise, the Journal adds in its February 15 story.
This is particularly good news for banks whose profit margins have been hurt by
low rates.
Concerns Remain
The economic
skies are far from clear. Economic growth in China has been fueled, in part, by
a rapid expansion in debt. Whether this is a bubble ready to burst is a concern
for investors, the Journal says. While consumer spending in the U.K. has not
been affected by the Brexit vote, the
outlook for France is unclear if the anti-euro National Front captures the
French presidency. Finally, Trump's economic success may depend on to what
extent he succeeds in implementing tax cuts and
stimulus spending instead of disruptive protectionist policies.
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