Equities
China is facing a risk of deflation. Marginal interest rate cuts and targeted stimulus will be insufficient to boost China’s growth given the current deflationary mindset and the danger is that the economy may be entering a liquidity trap. Deflation is bullish for government bonds, but negative for equity prices. Chinese share prices will continue to decline.
Investors are still cautious and have significant cash that needs to be put to work. Trickle-down of it into the US equity market may extend the rally. Overly bearish futures positioning is also a strong contrarian indicator. Disinflation is good for real earnings growth, and imminent earnings rebound may add support for equities.
As the S&P 500 nears our 4,500 target, we review the rationale behind the call to assess its merit.
The Eurozone just experienced two consecutive quarters of GDP contraction. For the remainder of the year, can growth pick up or will the ECB decimate activity?
