The Fed’s pointless rate projections, encouraging signs in the Eurozone, emerging market stocks, and subdued UK mergers and acquisitions (M&A).
We bring you some of our favourite analysts’ picks of the most important graphs this week, as well as a few choices of our own.
Jeremy Cook, chief economist at World First
Pay no attention to the dots behind the curtain. It seemed strange to us that the Federal Reserve would provide us a representation of rate expectations and then say that they are worried that it might misrepresent rate expectations. We had hoped that communication would have improved following last year’s “taper tantrum”, but that seems to not be the case.
The move to qualitative guidance from quantitative measures will only muddy the waters further in our eyes. The statement did not deviate much from recent individual members’ speeches, but for now at least the dots have been fired.
Alex Dryden, analyst at JP Morgan Asset Management
This week’s chart looks at the credit upgrades and downgrades in the Eurozone. Last quarter was the first time in six years that credit upgrades have exceeded credit downgrades in Europe. This is not only a reflection of the improving economic outlook in Europe, but also a product of the strength of company balance sheets as company leverage ratios also hit record lows.
Capital Economics’s John Higgins points out that the MSCI Emerging Markets Index has returned nearly three per cent in local currency terms since this time last month. But equities in developed markets have returned about minus one per cent. And there’s plenty of scope for the rebound in emerging market equities to continue, he says.
After all, the recent outperformance pales in comparison to their underperformance since the start of 2012 (see chart), which has left valuations looking much more attractive. Of course, it is unlikely to be plane sailing.
Growth in major emerging market economies is undergoing a structural slowdown, and hopes for a major stimulus package in China are likely to be dashed given the authorities’ desire to avoid inflating a credit bubble. The crisis in Ukraine could yet spread. And there is no getting away from the fact that monetary policy in the US is set to become less accommodative after years of being incredibly loose. But as we have suggested for some time, our sense is that the worst may now be over.
This chart from Mergermarket shows that, despite recent excitement over dealmaking, there’s still a long way to go until we’re at pre-crisis levels.
In fact, UK M&A actually dipped in the first quarter of 2014, representing the lowest quarterly value since 2009, and the worst opening quarter since Mergermarket began recording the data (2001). The absence of mega-deals, Mergermarket says, is responsible for the recent decline.