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Posted by Putnam Fixed Income Team, March 21, 2014
In Europe, slow growth appears likely to continue, with some regional differentiation.
Signs of strength in the south
Spain is doing much better than it had been just 18 months ago, and even Italy looks somewhat healthy now that its political crisis has passed. Importantly, fiscal pressure in the form of austerity programs is slated to ease somewhat this year. In a positive scenario, this could boost GDP growth, improve revenue growth for corporations, and result in better margins for companies that streamlined their operations during the period of austerity.
Disinflation may become a hindrance
In a dourer scenario, growth may remain too weak to pull up inflation, which is uncomfortably low. This puts the European Central Bank (ECB) in a tight spot: Essentially at the threshold of instituting negative rates, it has very limited monetary policy ammunition left to help mitigate disflationary or deflationary pressures.
In the meantime, however, tightening peripheral European spreads represent a form of financial easing, for which the ECB is quite grateful.
Smoke and mirrors at the Central Bank
Policy in Europe remains a game of smoke and mirrors. ECB President Mario Draghi has beat the drum of stronger forward guidance and reiterated an old and untried promise to do more if circumstances require. The OMT (Outright Monetary Transactions), through which the ECB might purchase European sovereign debt in the secondary market, is such a promise. In the eyes of many policymakers, it has thankfully never had to be utilized.
Today, more than four years into the recovery, capital market opportunities are shifting, with conditions in credit sectors such as high-yield corporate debt becoming a bit less attractive. However, the current cycle has different characteristics that suggest investors should not … Continue reading »
Posted by Jason R. Vaillancourt, CFA, Co-Head of Global Asset Allocation, February 28, 2014
While rising bond yields are consistent with a strengthening economic recovery, they also prompt the concern among businesses and investors that higher interest expenses could become a drag on continued expansion. Rising rates signal stronger economy We take a relatively … Continue reading »
Posted by Walter D. Scully, Analyst, February 20, 2014
A lackluster U.S. economic recovery and declining consumer sentiment often get blamed for weak sales at restaurants. However, another important factor has emerged: Fewer women are working outside the home. Weaker consumer spending U.S. consumers continue to curb spending in … Continue reading »
Posted by Putnam U.S. Equities Team, February 18, 2014
After moving sideways for the past two years, U.S. corporate earnings may be poised for reacceleration in 2014. While the growth is likely to be modest, we believe investors may be overlooking the potential for improvement. There appears to be … Continue reading »
Posted by Putnam Fixed Income Team, February 12, 2014
Unemployment continues to drop, but not because a lot of new jobs are being created, as many would hope. Instead, the unemployment rate is dropping primarily due to a declining labor participation rate. This remains a cause for concern for … Continue reading »
Posted by Jason R. Vaillancourt, CFA, ®, Co-Head of Global Asset Allocation, February 4, 2014
Emerging markets are vulnerable to the marginal tightening of U.S. monetary policy, we believe, caused by the reduction in bond purchases by the Fed. In December, the Fed announced it would reduce its $85-billion-per-month bond-purchase program by $10 billion beginning … Continue reading »
Posted by Sarah A. Marshall, Analyst, December 20, 2013
It can be challenging for a retail manufacturer to break into foreign markets, particularly when draconian import duties lead to price inflation and frustrate the growth of the retailer’s brand. Penetrating new geographies can be especially challenging for the luxury … Continue reading »
Posted by Joykrishna Mahato, Analyst, December 13, 2013
Tourists from China spent more money abroad in 2012 than tourists from any other country. At US$102 billion, Chinese international tourism eclipsed — by 20% — the total amount spent by either German or U.S. tourists. Only seven years earlier, … Continue reading »
A deeper dive
Capital Markets Outlook (PDF) 1Q 2014
Stocks can benefit from an improving global economy, but interest-rate-sensitive bonds remain vulnerable.
Fixed-Income Outlook (PDF) 1Q 2014
Declining labor participation and a stronger economy may make interest rates volatile, but credit risk remains attractive.
Equity Outlook (PDF) 1Q 2014
The outlook for U.S. stocks is tempered, while recovery and restructuring may lift international markets.
About the authors
Putnam’s veteran team of portfolio managers and analysts has invested over multiple economic cycles and in markets worldwide. They bring a global perspective and a wealth of expertise to the insights they offer on today’s market trends.