China worries about the job market and wants to boost the economy with fiscal impulses. Europe is weakening more than expected in the wake of China and Italy is even falling into recession. The US is doing relatively well with a continued robust labour market and good consumer sentiment. The FED confirms that, taking into account the global context, they want to observe the US macro data and wait for further monetary policy measures. The ECB was also surprised by the slowdown in economic growth in the Eurozone and is considering delaying the normalization of its monetary policy. The People’s Bank of China has already reduced the reserve requirement ratio and it is expected that at least one further reduction will follow.
According to the BofA / Merrill Lynch survey in February, US fund managers held relatively high cash positions. The optimism regained by the constructive news on trade talks and monetary policy lead to a buy the dips mode. With the higher stock prices in combination with the lower earnings growth expectations, shares are no longer valued favourably. Compared to bonds, however, they still appear attractive. As long as sales and corporate profits rise and bond yields remain so low, the stock market will remain supported. The question is how the markets, and then the FED, will react to a trade deal between the US and China with eliminated tariffs. A lot has already been anticipated and a consolidation is likely, as pressure on the Fed to raise rates further would rise again.
In Europe, the chaos surrounding BREXIT leaves the markets at a loss. It seems as if investors exclude the negative and the positive outcomes and assume something in between.