Sunday 20 January 2013

Question of the Week!



QUESTION OF THE WEEK
by RM Group of Richardson GMP



QUESTION OF THE WEEK


Surveys suggest the global economy is beginning 2013 with greater momentum than just a few months ago, but the big question is can it last?The U.S. avoided the worst of the fiscal cliff, at least for now with an eleventh hour compromise and more battles expected in the months ahead. The Fed remains committed to keep interest rates low until the employment situation improves significantly but it is uncertain how they will act once the unemployment rate reaches their specific target. Financial stresses in the Eurozone have eased with Spanish and Italian ten-year government bond yields at one and two-year lows, but there are a series of calendared events which could quickly disrupt the recent calm and reverse the recent trend in yields. Also, China’s economic recovery has gathered steam with stronger December data on trade and consumption, but can and will the trend continue?
Despite accelerating slightly of late, global growth remains quite subdued by historical standards and the global composite PMI for December is still lower than it was in the first quarter of last year. Even in the U.S., where the recovery is comparatively robust, GDP was growing at only about 2% in late 2012 and this pace will not move the unemployment needle lower. Economies in the Eurozone remained extremely weak at the end of 2012. Peripheral Eurozone bond yields are likely to move higher as Spain has made little progress in cutting its budget deficit and in Italy, elections in late February are likely to result in a coalition government which will find it difficult to implement the required structural reforms.
The upturn in activity in China has, like in the past, been largely driven by increased public sector infrastructure spending. Given there are limits to how much the politburo is likely to continue ramping up infrastructure investment, Chinese growth is likely to only match the 7½ % or so recorded in 2012.
Overall, we remain optimistic about the prospects for the global economy. But we are entering fourth quarter earnings season with stocks trading at 5 year highs. How much has been already priced into the equity markets is up for debate. The surge in the first few days of the year and the strong run in the last half of 2012 have pushed values higher and the litany of uncertainties or rolling crises have not gone away. We would not be surprised if one of them flares up and exerts pressure on the fragile pace of economic growth and a pullback in the equity and commodity markets.



Source: Richardson GMP Limited
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited. 

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