As earnings growth slows, the key driver of global equity markets will increasingly be the global macroeconomic picture and the direction of interest rate movements, although the M&A boom, which is expected to last, will play a supporting role.
“In terms of global demand we’re past the peak already,” says Thierry Cantet, senior European strategist at SG Corporate and Investment Bank. “While we still expect growth this year to be stronger than in 2005, this is down to the exceptional first half. World demand growth is losing momentum and the pace of growth is slowing.”
A belief that the global economy will deteriorate over the next 12 months is approaching a consensus, with a net 70% of fund managers interviewed in Merrill Lynch’s Global Investment Management survey expecting it to weaken. The effects of the slowdown are being felt in expectations of corporate profits; a net 52% of fund managers expect these to deteriorate, substantially more than previously.
Fears of a slowdown now lead many to believe that the Federal Reserve’s “pause” in its tightening of monetary policy could be a prelude to a reversal.
| All eyes on the US consumer |
| Consumption could slow as confidence looks fragile |
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| Source: Société Générale |
After correctly predicting that the Fed would hold rates in August, SG’s Cantet is in this camp.