The leading stock markets around the globe are heading towards a usual summer season, with thinner market liquidity where moves are more sudden – Europe could play a key role.
By Peter Lundgreen,
On Wednesday 7th July, the European Commission published its latest forecasts for the EU-wide GDP growth. This year, the growth rate will reach 4.8 pct. against the prior expectation of 4.3 pct., and the positive vibrations will reach into 2022. For the coming year, the GDP growth rate forecast has been upgraded from 4.4 pct. to 4.5 pct.
The GDP rebound in France will even reach 6 pct. this year, and 5 pct. in Italy. By these rebounds, the GDP, in real terms, will be back at the 2019 level in the fourth quarter of this year. This is the forecast for the for the whole EU area, with Italy still slightly behind other leading EU economies.
The Spanish consumer confidence index jumped to 97,5 in June, which was significantly higher than expected and actually the highest reading since the past two years. The optimism in Spain is linked to the reopening of the country, particularly the restart of the tourism industry. Surely, the tourism sector will generate growth this year, after the severe lock-down last year. But there is a long way to go before the industry is running at the usual high.
The economic rebound this year is mainly due to the steep drop in the economic growth last year, making it a technical rebound, but the original expectation was that mid this year, which is now, the giant EU rescue package should start generation growth. Last year, I even had the optimistic view that the rescue package could create a true temporary economic upswing this summer.
The economic move forward is of course positive, though what I pay most attention to are the numbers that indicate how the consumers are feeling. I argue that it will be the consumers that can bring the surprise growth jump, though mobility needs to stay open, and no new restrictions must be introduced again. This hope balances on an edge, as the Covid-19 variant is now showing how aggressive it is.
This hope though is easy to shake, which was seen this week when the German ZEW economic indicator was released. It dropped like a stone with more than 16 points, which was a heavy surprise for the financial markets. It shows that parts of the business sectors on the European continent is at risk of loosing the newly generated optimism again. Some of the business indices are actually suddenly showing a more mixed picture.
There is no doubt that the growth optimism is back in the European stock markets and among the European investors, and though the rebound growth that Europe is exploring right now may please the investors, the current growth was already priced-in the stock markets last year. One could argue that the growth outlook for next year is now the new positive fuel for the European stock markets. It’s partly a valid reason for staying positive, but the giant rescue package is also priced-in, at least once.
If I look around on the global stock markets, then specifically at the Western stock markets, the growth story still carries the bulls higher. I also remain positive concerning the stock markets in general, but the strongest growth signals I recon are in the USA and United Kingdom, and further with China as back on track.
It is always unpredictable what can happen in the financial markets during the summer break. The markets can continue higher in a market with thin turnover, or alternatively, the low turnover can suddenly be dominated by a fading trust in the growth story.
These developments have been the case many times before in the summer holiday market, and I remain positive in my overall view on the global stock markets, though I am fully aware that a summer dive is a risk.
Majority of good earning reports should also generate some support, but a sell-off will find its origin in the weakest story. The Eurozone area is, also when it comes to the global stock markets, the weakest part of the chain. I argued that consumers carry the key to more growth, then it is also the consumers that I keep in focus for a reverse situation. There is no doubt that I watch all data that say anything about how the consumers in the Eurozone are feeling – and hopefully, they will continue to feel good.
Peter Lundgreen is the Founding CEO of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment & finance. Peter is an international columnist and speaker on topics about the global financial markets.
