Monthly Market Report - May 2015

29th April 2015

With commentary from David Stevenson

Without wanting to sound like a maven of doom and despair, it does seem that the old adage about selling in May and going away until say September seems to be visiting us early this year. As I write this article it is mid-April and various warning signs are flashing 'code red'! The key market bug bear seems to be the all too obvious softening in growth for US consumer spending plus the equally obvious slowing pace of US corporate earnings growth. Neither of these trend indicators - in the world's strongest economy - need imply that a recession is imminent. It might just mean for instance that the US economy will not grow as fast as its peers but will advance nevertheless. Prime candidate for taking up the baton of growth seems to be Europe and the Eurozone where I suspect we're under-estimating the positive momentum. But even here there's a fly in the ointment - Greece. As I will discuss elsewhere I think the chances of a Grexit are growing by the day.

Turning to China, equity investors may be in buoyant mood but the Chinese economy is I think not growing anywhere near as fast as the Communist government would like it to at the moment! I suspect we'll soon begin to realise that GDP growth is probably running at closer to 4% pa rather than the hoped for 7% pa.

Next up in the list of worries is Iran. This should be good news. A settlement over nuclear technology should help keep oil prices low and encourage Middle East trade. Unfortunately I suspect the room for geopolitical mayhem is increasing as we inch towards a settlement. There are a great many vested interests out there who would NOT like a settlement on virtually any terms bar an Iranian total surrender and now is their chance to have an impact. Another concern might be the very real possibility that oil prices will continue to slip below $50 and then $40 a barrel, especially as we head towards the OPEC summit in June. In the medium term lower energy prices are great news for the world economy but in the short term this commodity price deflation will fuel market turbulence.

Overlaying all these factors is the simple fact that many bonds are looking unappetising in terms of yields and some equity markers look a bit frothy in the absence of strong earnings growth. Add it all up and I'd be willing to bet that the US Federal Reserve will be worried enough to NOT raise interest rates in June, sparking another summer of worry and concern about the direction of the global economy.

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