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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.
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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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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.
Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
