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.
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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.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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