Global markets are signaling that sustained economic growth will more than make up for Japan’s worst disaster since World War II, rising commodity prices and popular uprisings throughout the Middle East and north Africa.
|||Global markets are signaling that sustained economic growth will more than make up for Japan’s worst disaster since World War II, rising commodity prices and popular uprisings throughout the Middle East and north Africa.
Interest rate derivatives, bond sales by the riskiest borrowers and rebounding benchmark stock indices all show increasing confidence in the economy.
JPMorgan Chase is putting up $20 billion (R140bn) of its own money in a short-term loan to finance AT&T’s $39bn bid for Deutsche Telekom’s T-Mobile USA business.
Manufacturing strength from the US to Germany and China is giving economists confidence that the recovery from the worst financial crisis since the Great Depression will continue. Goldman Sachs forecasts a global expansion of 4.8 percent this year, while JPMorgan calls for 4.4 percent. The average over the past two decades is 3.4 percent.
“People are trying to balance the global growth with these exogenous economic shocks,” said Charles Burge, the head of investment-grade money management at Invesco. “People are thinking growth is the one that’s ultimately going to win and we can move past these one-off incidents.”
Markets have consistently rallied amid those shocks, called black swan events by Nassim Nicholas Taleb, the New York University professor and principal at Universa Investments. Taleb’s 2007 bestselling book, The Black Swan, showed history is full of events that can not be predicted by trends. The term refers to the belief that only white swans existed – until black ones were discovered in Australia in 1697.
This year markets have contended with the ousting of Hosni Mubarak as president of Egypt, protests in Bahrain, Saudi Arabia and Yemen, oil above $100 a barrel, record high food costs and a magnitude 9 earthquake in Japan that killed more than 8 000 people and hit a nuclear plant.
The events have not dented manufacturing that is expanding worldwide. The Institute for Supply Management’s US factory index rose to 61.4 points in February, the highest level since May 2004.
China’s industrial production rose 13.5 percent in 2010, while growth in Europe’s service and manufacturing industries accelerated to the fastest pace in four years last month, led by Germany.
Some of the riskiest borrowers are tapping the bond markets for cash with relative ease.
The Philippines, rated Ba3 by Moody’s Investors Service, sold $1.5bn of dollar-denominated bonds on Monday, completing its target for global financing and helping to cover this year’s budget deficit.
Intelsat, the commercial satellite operator taken private in 2005, announced plans on Monday to sell $2.65bn of debentures in the second-biggest offering of speculative grade debt this year.
New high-yield, high-risk bonds are reviving after issuance of all types fell more than 50 percent last week amid the threat of a nuclear disaster in Japan and growing tensions in the Middle East.
Corporate bonds of all ratings fell last week as Bank of America led $41.2bn in sales, a 58.4 percent fall from $98.9bn in the week to March 11.
Unit trusts investing in junk bonds had $471 million of outflows last week, the first time investors pulled cash from them this year, Deutsche Bank said.
“We had a little bit of volatility, but we’re coming back,” Burge said.
“The US economy looks like it’s on a solid footing and earnings will continue to grow,” said Joseph Keating of CenterState Wealth Management. “This is a buying opportunity. Time to get in the market.”
While investors pulled cash out of junk bond funds last week, they poured money into those that buy high-yield bank loans, Deutsche Bank reported, citing Lipper FMI data.
AT&T’s agreement to buy T-Mobile USA from Deutsche Telekom for $39bn to create America’s largest cellular operator was another sign of confidence in economic stability, said Matt Toms of ING Investment Management.
“We have a growth economy that seems like it is moving faster than it was six months ago,” said Jason Pride, the director of investment strategy at Glenmede. “Everything’s pointing in the direction of an economic expansion. There’s still a lot of work to be done, but it’s moving the right way.” – Bloomberg
Source: http://www.iol.co.za/markets-shrug-off-black-swans-1.1046013
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