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

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?

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement

Recommended

Visit/investments/investment-strategy/600637/buying-shares-can-be-a-tricky-business
Investment strategy

Buying shares can be a tricky business

A tip gone bad reminds John Stepek that buying shares in troubled companies in the hope that they can turn themselves around doesn't always pay off.
16 Jan 2020
Visit/520115/investment-trusts-the-cinderella-of-investment-arrives-at-the-ball
Funds

Investment trusts: the Cinderella of investment arrives at the ball

Investors should look beyond the market noise of a single year and examine the bigger picture. Max King explains what we can learn from 25 years of in…
8 Jan 2020
Visit/520292/passive-investing-etfs-wont-cause-the-next-market-crash
Stock markets

The boom in passive investing won’t cause the next crash

Passive investment funds such as ETFs are now such a fundamental part of financial markets that some people worry that they will spark the next crash.…
7 Jan 2020
Visit/520258/running-with-the-crowd-is-bad-for-your-finances-heres-how-to-resist-it
Investment strategy

Running with the crowd is bad for your finances – here’s how to resist it

To be a good contrarian investor, you have to avoid being swayed by the crowd. John Stepek explains how to go about it.
3 Jan 2020

Most Popular

Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/520553/money-minute-wednesday-15-january
Economy

Money Minute Wednesday 15 January: UK inflation and house prices

In today’s Money Minute, we look ahead to the latest UK inflation and house price figures, plus we have Germany’s GDP data for 2019.
15 Jan 2020
Visit/520598/money-minute-thursday-16-january-a-batch-of-company-results
Economy

Money Minute Thursday 16 January: a batch of company results

Today's Money Minute looks ahead to results from a host of UK companies, plus the latest unemployment figures from the US.
15 Jan 2020
Visit/economy/600632/money-minute-friday-17-january-uk-weakness-likely-to-continue
Economy

Money Minute Friday 17 January: UK weakness likely to continue

Today's Money Minute previews UK retail sales figures the UK, inflation data from Europe and industrial production from the US.
17 Jan 2020