Greece Back in the Spotlight
From: AlphaStar Market Review
Investors’ fortunes reversed in May. Whereas April saw foreign investments and hard assets posting strong returns and prompted some investors to make significant changes to their portfolios in response, May was driven by the US markets yet again. This strong performance surprised some investors, after several economic data releases were soft in the month of May.
Analysts hoped that US economic data would follow a similar pattern to last year, when the harsh winter suppressed evidence of an ongoing economic recovery. In that case, the economic data improved dramatically as summer approached and boosted investor confidence. This year, that seems unlikely. Up to this point, none of the data indicates that the US economy is struggling. It is just starting to show that the recovery is losing steam. As a result, the strong performance of US stocks in May is largely due to the relative strength and safety of the US economy as compared to Europe, Japan, and emerging markets.
Last month, it looked like Europe finally found some momentum. The European Central Bank’s stimulus program seemed to be having the desired effects and European stocks performed strongly. While this recovery started sooner than most analysts dared hope, it was encouraging. While US stocks increased in value dramatically in recent years, European stocks failed to keep pace. As US growth slowed in the early months of 2015, it looked like undervalued Eurozone assets were on the verge of a long-overdue recovery.
Unfortunately, the negotiations with Greece continue to weigh on the Eurozone economies. After months of back-and-forth and political grandstanding, the deadline for a deal is fast approaching. The European Central Bank and the International Monetary Fund maintain that Greece must agree to run significant budget surpluses, while it is paying down its debts. The Greek government contends that spending cuts and taxes that are required for those surpluses are stifling the Greek economy and perpetuating a deep recession. If the two sides fail to come to an agreement, Greece could leave the Eurozone. While European officials seem somewhat apathetic about that possibility, no one truly knows what the economic consequences will be for Greece or the Eurozone as a whole.
The economic news from China continues to improve, but it is failing to meet investor expectations. While those expectations seem to do little to impact investment in China itself, China’s trading partners in emerging markets are suffering. As an example, its Purchasing Managers’ Index (PMI) rose from 48.9 to 49.1, which shows an improvement from April’s numbers. Unfortunately, any number below 50 indicates that the economy is contracting and that Chinese companies are placing smaller orders for materials. As long as Chinese demand for raw materials is slack, the emerging countries that supply those materials will struggle.
China’s economy is currently on pace to grow by 7%, this year, but India overtook China as the world’s fastest growing economy by posting a 7.5% figure. Obviously, none of this Chinese data is bad or indicating that its economy is unhealthy. In fact, any developed nation would be overjoyed with 7% growth. The difficulty is that investors and analysts expect China to maintain its world-beating trend and drive global growth, especially in emerging nations
