The EU is the key to global stock markets
On Wednesday, July 7, the European Commission published its latest forecast for gross domestic product (GDP) growth across the European Union. This year, the growth rate will reach 4.8% against an earlier expectation of 4.3% and the positive vibes will reach 2022. For the coming year, the GDP growth rate forecast has been revised upwards by 4.4 to 4.5%.
The rebound in GDP in France will even reach 6% this year and 5% in Italy. Through these rebounds, GDP, in real terms, will return to its 2019 level in the fourth quarter of this year. These are forecasts for the entire EU area, with Italy remaining slightly behind the other major EU economies.
Spain’s consumer confidence index jumped to 97.5 in June, which was significantly higher than expected and makes it the highest reading in the past two years. Optimism in Spain is linked to the reopening of the country, especially the restart of the tourism industry. Certainly, the tourism sector will generate growth this year after last year’s severe lockdown. But there is still a long way to go before the industry hits its usual level.
This year’s economic rebound is mainly due to the sharp drop in economic growth last year, making it a technical rebound, but it was originally expected that by mid-this year, it was that is, now the giant EU bailout is expected to kick-start production growth. Last year, I even had an optimistic view that the bailout could create a real temporary economic recovery this summer.
The economic advance is of course positive, although what I pay most attention to are the numbers that indicate how consumers are feeling. I argue that it will be consumers who can deliver the surprise growth leap, although mobility should remain open and no new restrictions should be introduced again. That hope is balanced, as the 2019 variant of coronavirus disease (Covid-19) now shows how aggressive it is.
This hope is easy to shake, however, which was seen this week with the release of the German economic indicator ZEW. He fell like a stone with over 16 points, which came as a big surprise to the financial markets. This shows that parts of the business sectors on the European continent risk losing the newly generated optimism again. Some activity indices are in fact suddenly showing a more mixed picture.
There is no doubt that growth optimism is back in European stock markets and among European investors, and while the rebound growth that Europe is currently exploring may appeal to investors, the current growth was already built in. in the stock markets last year. . You could say that the growth outlook for next year is now the new positive fuel for European stock markets. Part of that is a valid reason to stay positive, but the giant rescue package is also included, at least once.
If I look around at the global stock markets, and then more specifically at the western stock markets, the growth story always carries the bulls higher. I also remain positive about the stock markets in general, but the strongest growth signals I recognize are in the US and UK, and further afield with China being back on track.
It is always unpredictable what can happen in the financial markets during the summer break. Markets may continue to climb in a market with low turnover, or alternatively, low turnover may suddenly be dominated by waning confidence in the growth story.
These developments have been the case on several occasions in the summer vacation market and I remain positive in my overall view of the global stock markets, although I am fully aware that a summer dive is a risk.
The majority of good income reports should generate some support as well, but a massive sale will have its roots in the weaker story. The euro zone is also the weakest link in the chain when it comes to global stock markets. I argued that consumers hold the key to greater growth, so it’s also consumers that I keep in mind for the opposite situation. There is no doubt that I am looking at all the data that says anything about how consumers in the eurozone are feeling – and I hope they continue to feel good.
Peter Lundgreen is the founding President and CEO of Lundgreen’s Capital. He is a professional investment advisor with over 30 years of experience and a power entrepreneur in investment and finance. Peter is an international columnist and speaker on topics relating to global financial markets.