Bob Baur
The latest ‘Economic Insights’ paper from Principal Global Investors’ Chief Global Economist, Bob Baur, and Senior Global Economist, Robin Anderson, concludes that the world economy is in the midst of a mild cyclical upturn.
The authors predicted this upturn earlier this year, and say it follows on from the climax of the three negative trends that have been major contributors to the recent extreme market volatility: the fading China-driven surge in emerging markets, the nearly two-year plunge in oil prices and the surge in the US dollar.
Validation of the upturn includes stellar US job reports and a clear rebound in manufacturing data, along with the return of consumer confidence and solid housing activity leading to rising home prices which add to wealth. Stability in China and a pick-up in Europe also signal that the way is up. The authors also point out that if the upturn is “real”, cyclical assets should outperform – and they did.
The authors stress, however, that investors should not expect a fast or easy upward ride.
Insights from the paper include:
- China looks to be smoothing out, with consumer confidence returning, worries about currency devaluation dissipating and other signs that, while there may not be a growth rebound there is a cessation of a two-year deterioration.
- Japan remains seemingly immune to the positive trends occurring elsewhere, with a fourth quarter of economic shrinkage on the back of weak production and retail sales – despite stimulus efforts of the Bank of Japan.
- The greater European economy is enjoying the cyclical upturn, with household spending leading recovery and unemployment, while still high at 10.3%, at its lowest since 2011
- The US Federal Reserve is still cautious despite the generally more positive outlook. While Fed Chair Janet Yellen virtually ruled out policy reversals or negative interest rates, she overtly acknowledged the clear impact of global events on the United States – and pundits are expecting a rate hike