Tag Archives: GDP

Fisher Investments Reviews the Global Economy in February 2017

After a flat January, the MSCI World Index rose 4.5% in February.[i] Eurozone equities also advanced, rising 2.6%. Throughout the month, global politics fixated investors. In anticipation of the Dutch and French elections, angst over possible eurosceptic populist victories rose. But in our view, as we saw with the Dutch election, these fears overrate the likelihood European elections bring radical change—teeing up bullish falling uncertainty as they pass without calamity for 2017. Last year, falling uncertainty in the United States and the United Kingdom buoyed markets. We expect a similar eurozone-centered round this year.

Eurozone political uncertainty is high, clouding investors’ view of healthy and improving economic fundamentals. However, as this year progresses and elections come and go, uncertainty should fall—boosting markets and possibly contributing to non-US equities leading later this year. The first vote was mid-March’s Dutch parliamentary election. Geert Wilders’ eurosceptic, nationalist Party for Freedom (PVV) led most polls for months, stoking fears his election could trigger a euro or EU exit. But Prime Minister Mark Rutte and his center-right party won a plurality, placing well ahead of Geert Wilders’ far-right party. Moving forward, we expect gridlock—Rutte will try to negotiate a coalition government with three other parties. Yet, knowing the outcome alone should quell investor fears and reduce uncertainty.

In France, the nationalist, eurosceptic Front National’s Marine Le Pen officially launched her presidential campaign, and her strong showing in early polling ahead of first-round voting raised fears of France exiting the euro—a “Frexit.” Partly as a result, French 10-year sovereign bond yields hit their highest levels in 17 months in mid-February, with Portuguese, Spanish and Italian yields also rising. That said, French rates are only just above 1%—far from alarmingly high—and such volatility is fairly typical ahead of elections. 10-year UK yields rose before last June’s Brexit vote, only to fall once the outcome was known. Italian yields similarly rose before December’s constitutional reform referendum—only to fall thereafter.

More recent polling shows Le Pen’s support falling modestly. But either way, first-round polling and Frexit fears overrate Le Pen’s election chances—and her ability to enact radical change if she wins. In the first round, opposition to Le Pen is divided among several centrist candidates (most prominently, the new En Marche! party of Emmanuel Macron and Republicain François Fillon). This increases her chances in the first round. But she is very unlikely to win more than half the vote, triggering a second, head-to-head round. The head-to-head race unites opposition to her. Polls show either centrist candidate trouncing her in a second round—despite a nepotism scandal embroiling Fillon. Even if she does win, her ability to take radical action like Frexit or reinstating the franc is extremely limited, as she would need parliamentary support and a successful referendum to effect either change.

The likely result of gridlock in two core European nations should relieve fears of extremism roiling markets. As it did in the United States last year, getting resolution—no matter who wins—allows investors to refocus on fundamentals.

Speaking of American politics, media and many investors stateside remain fixated on President Donald Trump, but very few of his actions carry any material market impact. Trump signed five laws in February and issued a raft of mostly non-market-related presidential actions. The vast majority of presidential actions to date amount to Executive Branch personnel-related decisions, sociological matters or demands to study and review regulation. Two laws were narrow rollbacks of financial disclosure and environmental rules involving Energy and Mining firms, both carrying little market impact. Neither rule existed for even a year. We anticipate intraparty gridlock preventing or watering down most economically significant legislation, which should mitigate possible dislocations from radical policy change and relieve fearful investors in the US and abroad.

Amidst the political fixation, many overlooked economic data. Yet data released in February showed sound global growth continued, generally beating analysts’ expectations. While eurozone Q4 2016 GDP was revised a hair lower (to 0.4% q/q from 0.5%), the quarterly expansion extends the eurozone’s growth streak to 15 straight.[ii] The bloc’s four biggest economies—Germany, France, Italy and Spain—all grew. More recent data were also positive. February’s preliminary purchasing managers’ indexes for eurozone services and manufacturing (PMIs, surveys measuring the breadth of growth) rose to 57.2 and 55.5, respectively.[iii] (Readings above 50 are expansionary.) As a result, eurozone composite PMI reached 56.0, the highest since 2011 and sixth straight rise.[iv] Citigroup’s surprise indexes—gauges that relate data to professionals’ expectations—show frequent positive surprise.

Eurozone inflation accelerated to 1.8% y/y in January, and prices in all 19 eurozone nations rose—the first uniformly inflationary reading since 2013.[v] This should quell lingering deflation fears and possibly pressure the ECB to curtail its counterproductive quantitative easing program, which flattens the yield curve, constraining banks’ loan profitability. The yield spread was the largest contributor to the eurozone’s Leading Economic Index rising 0.6% in January, extending an uptrend.[vi] Recently rising yields suggest a bigger contribution in February.

UK Q4 2016 GDP was revised up to 0.7% q/q from 0.6%, but the media reception was negative.[vii] While private consumption rose 0.7% q/q and exports rose 4.1%, business investment’s -1.0% fall prompted more handwringing over Brexit’s negative impact. Many believe growth is too reliant on consumption, especially since retail sales fell -0.3% m/m in January, a third straight drop the media blamed on weak-pound-driven inflation. However, retail sales volatility is normal, and about 60% of UK consumer spending goes to services, where spending appears healthy. Moreover, inflation isn’t hot. At 1.8% y/y in January, headline CPI is still tame and the acceleration largely reflects rebounding energy prices.[viii] Core CPI, which excludes volatile inputs like energy, is more modest and only slightly up from readings commonly seen over the last couple years.

Revised data confirmed US GDP growth at 1.9% annualized in Q4, and early 2017 data show more growth.[ix] Retail sales rose 0.4% m/m in January, despite dipping automobile purchases, which still remain near record highs.[x]  Excluding volatile cars, retail sales rose 0.8% m/m. Unseasonably warm January weather depressed utility output, causing industrial production to fall -0.3% m/m. However, manufacturing and mining rose 0.2% and 2.8%, respectively, as oil drilling rebounded.[xi] While a boon for industrial output, rising oil production does little to help oil prices and Energy shares, which continue to face headwinds from elevated supply—hence our underweight. The Institute for Supply Management’s (ISM’s) January Manufacturing PMI rose 1.5 points to 56.0, while New Orders ticked up to 60.4, a two-year high.[xii] ISM’s Non-Manufacturing Index fell 0.1 point to a still-high 56.5 in January, suggesting ongoing service sector expansion.[xiii] With 465 S&P 500 companies reporting, Q4 earnings are up 4.9% y/y. Profits are rebounding as Energy’s drag wanes. As the year progresses, barring a renewed drop in oil prices, Energy should boost headline profits, as year-over-year growth calculations will be based on very low 2016 levels.

Japan’s tepid economic growth continued in Q4 2016. GDP grew 0.2% q/q (1.0% annualized), its fourth straight quarterly rise—a rare positive streak for a moribund economy.[xiv] January retail sales rose 1.0% y/y, another sign of life, though rising fuel prices played a big role.[xv] While data remain weak, investors seem to be souring on Japanese shares. If this sentiment weakens further, it could reach a point that any positive news could surprise to the upside, providing an opportunity for investors.

This update constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Past performance is no guarantee of future results. A risk of loss is involved with investments in stock markets.


[i] FactSet, as of 1/3/2017. MSCI World Index with net dividends, 31/12/2016 – 31/1/2017 and 31/1/2017 –28/2/2017.

[ii] Source: Eurostat, as of 2/3/2017.

[iii] Source: IHS Markit, as of 2/3/2017.

[iv] Ibid.

[v] Source: Eurostat, as of 24/2/2017.

[vi] Source: The Conference Board, as of 2/3/2017.

[vii] Source: FactSet, as of 2/3/2017.

[viii] Source: Office for National Statistics, as of 2/3/2017.

[ix] Source: US Bureau of Economic Analysis, as of 2/3/2017.

[x] Source: US Census Bureau, as of 15/2/2017.

[xi] Source: US Federal Reserve, as of 1/3/2017.

[xii] Source: Institute for Supply Management, as of 1/2/2017.

[xiii] Ibid., as of 3/2/2017.

[xiv] Source: FactSet, as of 2/3/2017.

[xv] Ibid.


Fisher Investments Reviews: Weekly Market Recap 3/10/17

Global equities fell modestly amid generally positive economic data and persistent political chatter. US economic data were largely positive. Trade picked up in January as exports and imports climbed, while February nonfarm payrolls handily beat expectations. House Republicans unveiled legislation to replace the Affordable Care Act, but it remains too early to project potential market impact as the bill may be significantly altered or supplanted during the legislative process. European economic data were mixed but continue to show positive momentum.

The third and final estimate of Q4 2016 eurozone GDP confirmed 1.7% y/y growth—the 15th consecutive quarter of expansion.

In Asia, China’s annual National People’s Congress confirmed expectations for most 2017 economic targets—specifically, 6.5% GDP growth. South Korea’s Constitutional Court permanently removed Park Geun-hye as president amid corruption charges. By law, the country must now elect a new president within 60 days.

In the week ahead, the US releases employment data, the Fed and Bank of England meet to determine their countries’ respective monetary policies, and the Netherlands holds Parliamentary elections. As the election passes, expect falling uncertainty to broadly benefit global stocks regardless of the outcome.


Fisher Investments Reviews: Weekly Market Recap 3/03/2017

Global equities ended the week higher amid widespread positive economic data. US markets digested abundant central bank chatter and President Trump’s first address to Congress. Beyond all the talk, economic data were largely positive, reflecting a broadly healthy economy. The second revision of Q4 2016 GDP was unchanged—the US economy grew at 1.9% (annualized), as high consumer spending and vehicle sales offset slowing government purchases. French, German and eurozone PMIs remained expansionary in February.

UK data were mixed but remained broadly positive—February home prices rose 4.5% y/y, construction PMI rose ahead of expectations, the UK’s services and manufacturing PMIs slowed, but continued to signal growth.

February Chinese manufacturing expanded on strong domestic and overseas orders, surprising forecasters’ expectations for a slowdown. Japan’s January manufacturing PMI continued expanding, housing starts rose 12.8% y/y (sharply ahead of the 3.2% forecast), retail sales were modestly ahead of estimates and unemployment fell to 3%.

In the week ahead, US economic data are light, January factory orders and February employment reports likely take center stage. China releases February inflation and trade data, while Japan reports Q4 GDP and February machinery orders. The eurozone posts Q4 GDP and the ECB releases a monetary policy announcement.


Fisher Investments Reviews: Weekly Market Recap 2/24/2017

Stocks ended slightly higher despite sparse economic news. In the US, earnings season continued—two-thirds of companies beat earnings targets so far and over half beat revenue estimates. The Fed released minutes from its latest meeting—expectations for gradual rate increases remain intact.

United Kingdom Q4 2016 GDP was revised higher in its second release. The stronger posting was tied to better than expected consumption.

January Japanese trade data disappointed, with export volumes falling 0.3% y/y.

January Chinese loan data continued slowing.

Mexico’s Q4 2016 GDP grew 2.4% y/y, thanks to strong services output.

In the week ahead, the US releases January durable goods orders data. President Trump will address Congress for the first time. The UK releases January home prices. Japan reports January retail sales and industrial production. 


Fisher Investments Reviews: Weekly Market Recap 2/03/2017

Global equities were relatively flat as investors sorted through a flurry of political headlines, economic data and corporate earnings reports. Markets faced no shortage of political news — including an executive order on immigration, a Supreme Court justice nomination, cabinet confirmation hearings, sanctions against Iran and additional executive action impacting the financial industry. Political ideologies aside, equity markets are trending higher.

US economic data were positive as the January employment report showed an increase of 227,000 in payrolls—greatly exceeding expectations for 175,000.

The first estimate of eurozone Q4 2016 GDP was reported at 1.8% y/y— beating analyst projections. The Bank of England— encouraged by better-than-expected economic conditions since the Brexit referendum—left interest rates unchanged and upgraded its GDP forecast.

In Asia, Chinese January services and manufacturing PMIs beat expectations. The Bank of Japan left interest rates unchanged and modestly upgraded its economic projections. Many developed countries release trade data next week.



Fisher Investments Reviews: Weekly Market Recap 1/27/2017

Global equities ended higher amid strong economic data and political wrangling. The new Trump Administration dominated the media. As always, our political commentary is non-partisan, focused solely on assessing policies’ potential impact on stocks.

President Trump made headlines by signing several executive orders and memos on healthcare, trade, immigration and other policy areas. US data showed continued economic strength, but were mixed compared with expectations. IHS Markit’s preliminary January manufacturing and services Purchasing Manager Indexes (PMIs) exceeded expectations at 55.1. Non-US data were light this week.

UK Q4 GDP met expectations, rising 2.4% annualized on strong retail, hotel and restaurant spending. In the eurozone, IHS Markit’s January composite PMI hit 54.3, narrowly missing forecasts, while M3 money supply beat expectations at 5.0% y/y. Japanese December import and export growth both accelerated. Most countries release January manufacturing and service surveys. The US reports November home prices, December personal income and spending and January employment. The eurozone posts Q4 GDP, January CPI and December retail sales. The Fed and the Bank of England release interest rate decisions.

Fisher Investments Reviews: Weekly Market Recap 1/20/17

Global stocks were modestly lower despite upbeat earnings and economic data. Donald Trump was sworn in as President, with investors looking to his inaugural address for signs of policy priorities. As with all politicians, we remain cautious of rhetoric and prefer to judge policies once proposed and seen through to fruition (as so few policies generally are). Earnings season continued, with banks—which typically report earlier than others—so far reporting broadly stable core results.

British Prime Minister Theresa May provided some clarity on Brexit developments, namely regarding the mechanics and goals for passing a final deal. Though details were sparse, Parliament will vote on a finalized deal with the European Union, suggesting the agreement will likely have broad appeal. But it’s far too soon to know how negotiations play out—a process requiring years, not months. As expected, the European Central Bank (ECB) left interest rates and bond purchases unchanged, maintaining a dovish stance.

Chinese economic data was generally as expected—Q4 2016 GDP expanded 6.8%, bringing full-year growth to 6.7%, far from the “hard-landing” many have fretted for years.

President Trump’s first 100 days kick off, and investors will be eagerly dissecting policy pronouncements for market impact. Economic releases pick up next week—the US and UK release preliminary Q4 2016 GDP.