The rise in stock markets in OECD countries has been strong in the first quarter of 2009. The markets are driven by:
− the industrial recovery, which, besides, largely results from the Chinese recovery;
− the end of capital flows to emerging countries, as this capital is being invested in OECD countries;
− the end of the adjustment of employment in the United States via the improvement in household confidence and the fall in risk aversion;
− the highly expansionary economic policies still in place;
− the improvement in company results.
However, the stock markets in OECD countries are in our opinion not valuing any of the risks:
− persistently sluggish growth in domestic demand in OECD countries;
− risk of a levy on incomes due to the rise in commodity prices (metals);
− lower global liquidity if emerging countries no longer have to accumulate official reserves to stabilise the dollar;
− restrictive fiscal policies in OECD countries or, on the other hand, rise in long-term interest rates.
These charts of metal consumption are quite interesting in regard to "China effect", click on charts to enlarge, courtesy of Natixis.
While some countries believe the "China effect" are their leading indicators, there is some food of thought for admirers of steep yield curves too. Meanwhile the Fed finally sees that "Overall economic activity increased somewhat ..." But the brave declaration of "The Consumer Is Back" may still need some proof of sustainability.
After all, it looks like guys are indeed running out of cash, as broad based recovery is leaving defensive sectors in the red for the day, despite S&P500 staging a nice 1+% advance.