The global economy is growing again. Modestly, perhaps, but growing nonetheless. Have the structural threats been dispelled? What’s the situation with regard to tapering, and how are the markets reacting?
The convalescent global economy has made progress in terms of expansion, despite all the structural difficulties. If they have not done so already, in 2014 the majority of industrialized nations will find their way back onto a growth path that although flat is also less fragile. And for the first time in years, we can see these improvements reflected in the leading indicators with a certain degree of synchronicity all around the globe. Unfortunately this pleasing cyclical development is scarcely likely to come as a positive surprise for the financial markets, much in the same way as the well-known structural problems are only having a latent negative impact.
The financial markets will therefore remain in thrall to monetary policy in 2014, since they have fallen prey to an insidious dependence on monetary stimulus. This intoxication on cheap money is an undesired side-effect of the measures to tackle the crisis in recent years, and has reached significant proportions. The fear of withdrawal is therefore ubiquitous, leading to paradoxical behavioral patterns on the markets: more negative news brings calm or even provides a lift, while excessively positive news immediately brings on the symptoms of cold turkey. This is unsettling the central banks, and is prompting them to err on the side of being too late in weaning the dependents off their liquidity fix.
Here you can find the answers to these questions and explanations on the current positioning of LGT Capital Management: LGT Asset Allocation Strategy