Displaying items by tag: europe

(New York)

Over the last few weeks the US stock market had looked strong. Stocks had shrugged off a number of geopolitical disturbances with relative ease. However, suddenly, a lot of macro signs are looking poor. The combination of European political turmoil, weaker growth, and a sudden drop in US bond yields, are all coming together in a package that shows things are not as rosy as they might have seemed a few weeks ago. While European sovereign spreads are widening to the largest since 2013, US Treasury yields are plunging and are now well below 2.9%.

FINSUM: This might be the start of a very rough summer for markets, and how fitting that it all began on Memorial day. While some might say “It’s just Italy”, Europe has proved enough to scuttle global markets in the past (see the summers of 2011 and 2012).

(Washington)

Over the last several weeks, the market has gone through various fits of panic over whether a global trade war, sparked by the US, might imperil the global economy. However, over that period, sentiment has generally improved, with most investors now thinking a trade war unlikely. That view may be far off the mark, as two major disagreements are worsening. The first is between the US and Europe, on whom Trump may impose additionally steel tariffs imminently. Europeans have vowed to retaliate. With China, the situation is eve more worrisome, as the country has refused to even respond to Trump’s requests tha it slash $100 bn from its trade surplus with the US and lessen its backing for industrial upgrades.

FINSUM: China seems to feel it is finally big enough to stand up to the US. It is probably correct, which means we may end up in a big standoff with Beijing. Here is the big question though—will that ultimately (e.g. 3-plus years from now) be bad for the US economy?

(London)

The US stock market is looking increasingly volatile at the moment. Valuations are high, there are a number of fears, and worries over a trade war are causing daily swings. So what is an investor to do? One good option is to hedge US equity exposure with some international equities. Overseas stocks had a mixed first quarter but have been doing well recently. The reason why appears to be that they have underperformed the US for years, but are now finally catching up. While lending standards are tightening in the US, they are loosening elsewhere, causing a consumer spending boom. Further, higher US valuations make overseas stocks look “cheap”.

FINSUM: Having some overseas allocation seems like a good idea right now. The only real weakness we see, beyond Dollar risk, is that a trade war would negatively affect all countries, at least in the near term.

(London)

If you are thinking about putting some money into foreign stocks, you might want to wait. Overseas stocks need to go through a bear market before they are worth buying again, and they may be well on their way. The MSCI EAFE is seriously underperforming the US market, but don’t be fooled, it has historically done so when when it is ready to continue to underperform, not the other way around.

FINSUM: The big question is why foreign stocks are underperforming The perceived wisdom is that investors want to chase fast moving growth stocks, which are predominantly in the US.

(Stockholm)

For the first time in half a century, Sweden is seriously prepping its country for the possibility of war. Growing national anxiety over the threat of Russia has led the government to send out 4.7m information pamphlets to all households informing them of what to do in the event of war. “All of society needs to be prepared for conflict, not just the military. We haven’t been using words such as total defence or high alert for 25-30 years or more. So the knowledge among citizens is very low”, says the government. The country is also considering whether it should join NATO.

FINSUM: The Baltics and Scandinavia are particularly exposed to possible Russian military aggression, so it makes sense they are nervous.