Over. This may be the magic word of the financial markets at the end of the happiest and most propitious summer for seven years now. Perhaps these four letters contain the key to answering the most insistent question: will the stock market rally end in September, amidst political and financial problems? Or is the season of graces destined to continue?
Over, understood as the crisis is over. Signs are multiplying that, six years after the outbreak of the subprime crisis, the world appears to be over the worst. Above all, the United States has once again become the center of gravity of world growth. The American locomotive is on the verge of reaching 3% growth by the end of the year, despite the persistence of the conflict in Congress over budget cuts which has severely limited public intervention.
Japan, albeit with many difficulties, is picking up speed as demonstrated by the increase in GDP (+2,6% in the second quarter), even more by the recovery in consumption.
Even Europe has returned to growth, as demonstrated by the data on the GDP of the eurozone. It's a patchy take-off: the German locomotive advances, but the Netherlands of austerity loses body like Sweden which does not participate in the euro. Italy remains with the minus sign, but Portugal and Greece, surprisingly, show that rock bottom has probably been reached.
Instead, the Brics, the great protagonists of the first part of the century, set the pace. China has practically halved its growth rate: no more than 7,5% this year, even less in the foreseeable future. India is experiencing major problems: capital flight, the rupee falling, difficulty in attracting new international capital due to a bureaucratic structure which is holding back investments. Brazil blames most of all the slowdown in raw material prices. Industrial investments remain at a standstill or do not exploit all the potential due to the lack of infrastructure. Not made in the fat cow years. Russia is in full retreat. The authoritarian pall imposed by Vladimir Putin suffocates entrepreneurial energies. The fall in gas prices, which is weighing on Gazprom's fate, has done the rest.
In short, the center of gravity of the world is once again moving towards the West. But this is also a good sign: the Great Depression no longer inhabits the United States, but neither does it in the eurozone.
Over, intended as over-confidence. Yes, overconfidence can be the real enemy of Taurus, analysts caution. Of course, America has big jokers to play: the system has regained flexibility and is able to take full advantage of the fracking revolution, which allows the United States to aspire to be the Saudi Arabia of the XNUMXst century in the energy field . But the US recovery is fragile: unemployment is still high; moreover, the recession has profoundly changed (for the worse) the characteristics of the labor market with the result that more modest consumption is picking up again, but both Wal Mart (popular consumption) and Macy's (luxury shopping) are lagging behind. The recovery, from the real estate market to car purchases, depends on the level of interest rates, at historic lows. What can happen with the tapering, or the end of Federal Reserve support?
No less disturbing are the questions about Europe. Positive signals are coming from Southern Europe on the growth front. International investors are back (the share of BTP purchases goes from 25 to 34%), GDP grows in Portugal and Greece and so on. In this context, the great money managers of Merrill Lynch and Goldman Sachs have filled up on the stock exchanges with the most depressed prices (see Milan and Madrid). But, asks Mohamed El Erian of Pimco, are we sure that in September, once the German elections are closed with the victory of Angla Merkel, the usual problems won't reappear? Brussels and Berlin have neither intention nor interest in making discounts on the bank front; Greece, in January, will need new capital; the Italian debt remains the unknown factor that can blow up much more solid constructions than the current community of Europe.
In short, woe to fall into the trap of excess confidence: the Stock Exchanges can reverse. But some elements seem to fuel a moderate optimism for the recovery: it won't be an autumn in pink, but not even as black as that of past years. We will see if a gray or lighter and brighter shade will prevail. For now we note that:
1) The summer saw a robust recovery in the financial markets of the West, thanks to the oxygen provided by the central banks, led by the Fed and the ECB. The trend, which started on Wall Street and first infected Japan, has now crossed the Atlantic. The Frankfurt Stock Exchange restarted first, now it's the turn of Madrid and Milan.
2) The phenomenon has affected the debt market. In view of a change in the Fed's monetary strategies, necessary after the recovery of the economy to avoid the explosion of inflation, T bond rates are at the highest levels for two years. A similar phenomenon is affecting Germany: on Wednesday the German ten-year bond rose to a two-year high, despite the fact that the Berlin Treasury has renounced to place a part of the bonds at auction to avoid further strains. On Wall Street, the expectation of tapering has already pushed the rate of the ten-year T bond to 2,75%.
3) The rise in yields predicts a slowdown in stock exchanges: if bond yields increase, stock exchange prices appear less attractive, barring upward jerks in profits that are not seen in the balance sheets.
4) The story is different for Mediterranean Europe: the lesser pressure on the Eurozone reduces the risk premium required by investors to bet on Spanish BTPs and Bonos. A year ago, when the spread was at 570 points, the governor of the Bank of Italy warned that the fundamentals justified a gap of 200 bp to the detriment of the Bel Paese vis-à-vis Germany, the rest was the symptom of a European evil. Today the spread is approaching 200 points. That is: the European malaise vanishes, the Italian one remains unchanged. But Piazza Affari, after years of depression, still has a long way to go to reach levels comparable to the competition: telecommunications, banks, industrial companies are still at good prices.
5) Stocks most exposed to the American market should be favoured. But those who like opposite operations could anticipate the recovery of utilities: domestic consumption could recover.
In short, the international framework, for once, appears favourable. But we don't know for how long. For this reason it will be important to know how to exploit the window of opportunity offered by the markets: the average rate on BoTs fell from 2,18% in 2012 to 0,91% in the first seven months of this year. Since the beginning of July, Piazza Affari has recovered around 33 per cent, but still remains far (just in the case of Telecom Italia) from the prices of its competitors. On the other side of the balance, however, there is the extraordinary self-destructiveness of Italian politics. A catchphrase that is never over.
