Our activity indicator was stable at 0.1 in January, held back by a slight weakening in consumer spending. Investment remained buoyant and exports were still positive despite varying trends between regions. Our inflation indicator moved further into positive territory, to +1 from +0.5 in December.
After several months of hesitancy during which European stockmarket performance was consistently disappointing, left behind by almost all other major global asset classes, could there be more encouragement for investors in last few weeks of the year? Recent developments mean that it is very tempting to predict a rally. That is especially the case since, unless the European markets show signs of waking up soon, it will become increasingly difficult for European investors to maintain hopes of a long-overdue rally.
According to Elliott wave aficionados, the fifth wave of the upward phase of a market cycle, itself composed of five wavelets, is characterized by unpredictability and unusual exuberance. During these periods, financial reflation and its powerful wealth effects overwhelm structural economic factors, and even most economists start having trouble differentiating rationality from recklessness. Those who don’t are considered party-poopers; they become less and less audible. The bond markets and central bankers also generally jump on the bandwagon. This often marks the beginning of the end of the party.