THOSE looking for things to worry about are being spoilt for choice right now. Greek banks are on borrowed time as we enter yet another weekend being labelled as the ‘final chance’ by creditors. China’s onshore equities continue to plunge lower, with the various obstacles put in their path by the Chinese authorities barely seeming to check the pace of declines.
Meanwhile, Governor Alejandro Garcia Padilla’s comment that Puerto Rico’s debt “is not payable” has added to the sense that now is not the time to be taking any investment risk.
However, for the moment, we remain reasonably sanguine of the risks that any of these pose to the ongoing global economic recovery either individually or collectively. This is not to say that none of these could upset the apple cart, just that the more important factor to continue to watch is the prospects for the US economy.
The US economy remains by some distance the world’s most important capitalist economy. Within this economy, it is the US consumer that occupies the largest and most important role. The fact that the US economy remains incapable of feeding this beast on its own suggests that this is still where we should look for what comes next for the rest of the world.
Although the most recent hourly earnings data in the US took a step back, other data continue to point to wages turning up more forcefully across the economy amidst diminishing labour market supply. Trends in US consumption over the last year are already barely distinguishable from pre-crisis trends and may see further upside yet as wages continue to move higher.
With the prospects for the private sector looking increasingly bright, as evidenced by the new orders components of both the non-manufacturing and manufacturing ISM surveys, we feel a more durable pick-up in global trade (ex commodities) is unlikely to be far away either. This improving global trade picture should help paper over some of the cracks appearing in Asia in particular.
Alongside this, our confidence in the continental European economy is rising, even in the face of the continuing uncertainty around Greece’s fate. Business confidence is brightening across the region, outside of Greece, and the ECB’s efforts to reboot the banking sector over the last year look to be starting to bear fruit.
We are no doubt closer to the end of this already elongated economic cycle than we are to the beginning. However, we still suspect that there are sufficient remaining unfulfilled economic opportunities to warrant advising investors to continue to lean investment portfolios towards equity markets and away from the fixed income complex, where investment personality and risk appetite permit.
:: Jonathan Dobbin is head of wealth and investment management NI at Barclays. He can be contacted on 028 9088 2925 or email jonathan.dobbin@ barclays.com.
