Seen through the eyes of European investors, the first quarter of the year was the strongest in four years. MSCI World (in euros) delivered a return of 14.7 percent. March delivered a return of just under 3.0 percent. Risky asset classes like high-interest business bonds and EM government bonds also delivered a very high yield.
In addition to the strong momentum from the first months of the year. According to Chief Strategist David Bakkegaard Karsbøl, the main reason for the strong performance was probably that both the U.S. and European central banks reacted to sharply falling inflation expectations by more or less giving up their planned tightening of monetary policy.
The OECD leading indicators are continuing to fall in all regions, although the Eurozone seems to be falling more slowly than before. This often indicates that rock bottom is fast approaching, especially if there are no revisions to the data included in the Eurozone’s leading indicators.
When David Bakkegaard Karsbøl speculate that a bottoming out of the leading indicators for the Eurozone is getting closer, it is based on the observation that:
1) The leading indicators in Europe have already fallen for 14 months in a row
2) That our models for industrial production in Europe show that we are facing accelerated growth in the coming 12 months.
Although growth in European industrial production is currently negative, we should – all things being equal – expect faint positive growth rates at the start of 2020. Similarly, the models show that growth deceleration is worst in April-May. Leaders in the European manufacturing industry, who have already seen the PMI figures (a leading questionnaire survey) far south, will in all probability sense a change for the better over the coming two to three months.
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