As a far larger driver of the global economy than the other main headline-grabber, Greece, we are concerned about the recent market volatility in China, and remain cautious about the potential worsening of the macro economy in the near term. Since the reported official figures’ reliability are questionable, we prefer to observe what companies with exposure to the region report over the course of this earnings season, and so far we’ve had SKF profit warn as a result of Chinese weakness and BMW saw deliveries decline in May for the first time in over a decade, via its Brilliance joint venture, which saw profits slump 40% in the first half of the year. We continue to monitor corporate results through the earnings season; however, the initial signs are not encouraging.
Mario the Market Whisperer
Once again, Mario Draghi’s words have calmed markets, and the guardian of the monetary union appears to have managed to firewall Greece’s issues from spreading into the wider market, with credit spreads remaining fairly tame, even at the height of the Greek drama, and narrowing towards pre-crisis levels in the wake of the recent agreement. Unlike Draghi’s “whatever it takes” speech three years ago, his most recent address was supplemented with action, as the ECB head announced another ELA extension (EUR 900mn) and even suggested that Greece’s bonds may soon be included in the ECB’s QE programme. As discussed above, we expect the ECB to remain the most loose of the developed nation central banks.