Economic surprises positive for first time

The global economy continues to follow a moderate growth path. All economic activity indices for the manufacturing sector are again above 50, but only slightly so for China and the euro zone. However, for the first time since February 2014, economic surprises for the G10 have become positive. The improvement comes mainly from the euro zone, while economic surprises are more or less stabilising in the US and emerging markets.

Regarding the euro zone, we still expect the depreciation of the euro and the decline in oil prices to support the economic recovery in the first half of 2015. This will come in addition to better financial conditions thanks to the European Central Bank’s actions.

The central bank now faces a big challenge, as investors had high expectations regarding the ECB meeting held on January 22nd. Markets expected Mario Draghi to announce a full-blow quantitative easing programme that would include government bonds. The consensus standed at a programme totalling EUR 500 billion, mainly through government bonds. (In the meantime, the ECB has successfully launched its QE programme, injecting no less than EUR 60 billion in the economy each month). The ECB’s decision will depend on some legal constraints and Germany’s cooperation, and will have an important impact on the financial markets.

Read the full Cross Asset Allocation Investment Strategy - January 2015