Springtime views centre on growth

Sat Mar 17, 2012 2:49am EDT
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By Richard Hubbard

LONDON (Reuters) - Spring is in the air for financial markets. Liquidity is abundant, the desire to invest is rising and green shoots of growth are becoming more apparent across the developed world.

The official start of spring in the northern hemisphere falls on March 20, when night and day are equally long, but before investors put a grim winter behind them entirely, they may want to wait for surveys of economic health in China and the euro zone due a couple of days later.

Along with this purchasing managers data, the coming week's releases feature a detailed readout on the health of the U.S. housing market, inflation measures from the UK and Germany, and Japan's latest trade figures.

And perhaps the biggest cloud on the horizon is rising oil prices, which are threatening to unleash inflation in the fragile developed world and worsen the problem in emerging markets.

So the question most investors will be looking to answer is whether, with central bank policy easing now mostly on hold, the economic outlook justifies further gains in risk asset prices, which are already on track for a stellar first quarter.

"If you've got big chunks of the world not firing on all cylinders, to expect ongoing material gains from risk assets seems a touch too hopeful to us in the short run," Adrian Cattley, pan-European equity strategist at Citigroup said.

The March flash purchasing manager's surveys for the euro zone on Thursday are expected to confirm that the debt-laden region is in a recession, albeit a mild one, with Germany and perhaps France avoiding the contraction.

The HSBC Flash China Purchasing Managers' Index (PMI), an unofficial reading of manufacturing activity in the giant economy out on the same day, is also expected to point toward a slowdown in growth though this index is rising from a low base.   Continued...

A red London bus passes the Stock Exchange in London February 9, 2011. REUTERS/Luke MacGregor