Since the start of 2012, markets have remained in a fairly buoyant mood, marked in particular by an upward move in risky assets and a positive trend for certain intra-EMU spreads. The cause of this more favourable trend is probably a shift in the market's attention from the eurozone crisis (which dominated the second half of 2011) to other more promising subjects. These include the signs of resilience of the US economy, which in recent months confirmed that it was still positive, and the Chinese economy (the leading indicators and the latest GDP figure likewise point to a soft landing), and the easing of financial conditions in Europe due to the refinancing operations carried out by the ECB.
These factors are positive, but are not extremely surprising and are in line with our expectations. US growth has not proved higher than what the consensus of economists was already expecting a few months ago, Chinese growth is still settling in to a cruising speed that is less vigorous than before, and for most observers, including ourselves, there has never been any real doubt that the ECB would provide sufficient liquidity to the banks for their funding. This rebound can therefore also probably be seen as a "backlash" against the generally pessimistic consensus and conservative positions that have prevailed among investors for several months now.
This respite is worth enjoying, but we do not regard it as a trend turnaround, for several reasons. First, we believe that, all in all, US growth will remain limited in 2012, and it is unlikely that, as the year progresses, markets will be enthusiastic about the growth outlook in the United States given the fiscal tightening that will have to begin next year. Next, in the case of the eurozone, we consider that the economic risks are on the downside and that little has been settled.
The cases of the countries which in our opinion represent a high risk of insolvency (Greece, Portugal, Ireland) have not been dealt with, there is still no new financing mechanism in place in the eurozone, the flaws of the monetary union have undergone little or no discussion, and the pro-cyclical economic policy of eurozone governments is still as threatening for growth prospects. With political deadlines coming closer (in particular the difficult negotiations on the new treaty, which was agreed to in principle in December 2011), the Greek PSI issue which seems to be at a standstill, and a sharp increase in the pace of debt refinancing in the coming weeks, it can be feared that the eurozone will become the focus of market concern again.
For these reasons, we largely maintain the cautious investment recommendations that we were already giving last December.
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