The four numbers that matter to financial markets

Four prices matter more than any others to financial markets, reckon researchers Gavekal. John Stepek explains what they are.

933_MW_P14_Strategy

Iran: a reluctant swing producer

Four prices matter more than any others to financial markets, reckon researchers Gavekal. What are they?

What if you could boil down the apparently endless complexity of financial markets to just a few key numbers to watch? Louis-Vincent Gave of research group Gavekal reckons you can. "Four prices matter more than all others, and together these determine the level of global economic activity and of investors' risk appetite." So what are they, and what are they telling us about markets right now?

The US dollar

In short, everyone needs dollars and so the strength or weakness of the dollar index (which measures the dollar's value against the currencies of America's key trading partners) has a big effect on economies everywhere. Last year, a strong dollar was a major contributor to a slide in emerging market stocks and currencies, as investors worried that some emerging countries would be unable to repay their debts. But with Federal Reserve boss Jerome Powell now sounding a lot less likely to raise rates this year, the dollar looks likely to weaken, at least marginally, this year.

The ten-year US Treasury yield

US corporate spreads

The oil price

So what does it all add up to? Gave reckons that a weaker dollar, low-ish oil price, and low-ish yields mean 2019 should be good for both emerging-market debt and equities (see page 24 for more ideas on this), and also for Japanese equities. As for the big risks, investors should "underweight US equities" and avoid high-yield US debt if growth really does slow, then rising default risk could hit the latter hard.

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021
Are Spacs just for suckers?
Investment strategy

Are Spacs just for suckers?

This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets…
21 Sep 2021
The end of the bond bull market, and how to invest for it
Investment strategy

The end of the bond bull market, and how to invest for it

The great bond bull market looks to be over, and you probably don’t want to be holding government bonds, says Merryn Somerset Webb. Here’s what you sh…
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021