The world economy is primed for its fastest expansion in four years, with the U.S. propelling the improvement in output.
Global growth will accelerate at least 3.4 percent in 2014 from less than 3 percent this year as the euro area recovers from recession and Chinaand other emerging markets stabilize, according to economists at Goldman Sachs Group Inc., Deutsche Bank AG and Morgan Stanley. The U.K. will be a standout, while Japan risks damping the mood by suffering a mid-year slowdown after an April increase in sales taxes.
“So far it’s been a very bumpy, below-par and brittle expansion,” said Joachim Fels, co-chief global economist at Morgan Stanley in London. “Next year could bring a very important transition: a transition to a sounder, safer and more sustainable recovery.”
The upturn should prove bullish for equities and bearish for bonds. If it boosts corporate confidence in the durability of growth, it could further fuel demand, raising the odds that 2014 will break the pattern of recent years and come in better, rather than worse, than projected.
“An improving global-growth picture is widely forecast but, in our view, also still doubted in the investor community,” said Dominic Wilson, chief markets economist at Goldman Sachs in New York. “We therefore see room for markets to price in a better cyclical story.”
GDP growth should be edging higher as we approach five years since the severe credit crisis recession which reach its trough for most countries between 4Q 2008 and 1Q 2009. Carmen Reinhart, Ken Rogoff and other academic economists have long pointed out that it takes at least five to seven years for economies to recover from the credit-related setbacks.
How might this affect stock markets?
Investors are more worried about slow global GDP growth which generally underperformed most forecasts for 2013. They are also concerned about the prospect of tapering for the USA’s quantitative easing (QE) programme.
I spend at least half of the Audio time discussing stock markets every day and significant corrective phases are underway for the leading ASEAN indices, Indonesia, Thailand and The Philippines. Clear leaders often lead in both directions, as veteran subscribers have heard me say for decades. These three above bottomed in 4Q 2008 (not shown on the 5-year charts above) and way outperformed Wall Street before peaking in September 2013 from very overextended positions relative to their 200-day MAs. Singapore, ASEAN’s most developed economy and an important financial sector is also underperforming.
Wall Street is the biggest influence on global stock markets and it will take some cheerleading from Janet Yellen at the Fed to prevent these overextended and tired looking indices – DJIA (weekly & daily), NASDAQ Comp (weekly & daily) and S&P 500 (weekly & daily) - from experiencing at least mean reversions back to their rising 200-day MAs.
Keep an eye on the US 10Yr T-Bond yield which is ranging back towards its early-September high just over 3%. Janet Yellen will hope to keep it below that level but the next upward break will be a temporary headwind for the US stock market if the indices above are still overextended.Back to top