Strong fundamentals and a positive earnings season are providing market stability in an environment of rising political risks.
Market and macroeconomic fundamentals remain strong, with no great changes seen over the past week. The earnings season continues to be better than analyst expectations, and confidence indicators, logistics data and most German orders data show signs of strengthening. Political risks, in both Europe and the US, are the clouds on the horizon. Europe’s political risk is reflected in the French and Italian bond markets; and political risk in both the US and Europe is seen in the equity risk premiums paid to investors.
According to ABN AMRO Group Economics, the Greek bailout remains very messy and chaotic. Nick Kounis, Macro & Financials Markets Research Team, wrote this week that “we expect that a way forward will be found at the last minute as usual, but in the meantime there will be continued uncertainty. In any case, Europe has arguably bigger problems, given rising political risk and concerns about the impact of an eventual end of quantitative easing on vulnerable countries. We are particularly concerned about poor fundamentals in Italy and Portugal.” For more information, read the 8 February 2017, Daily Insight.
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