Market Commentary: Markets showing signs of stability after recession

Five years after what can be termed the worst financial crisis ever, developed nations including the U.S. the U.K. and the EU are showing signs of a stability and consistency in economic growth that was last witnessed over two decades ago.

That period was called the ‘Great Moderation’ by economists, as economies expanded at a slow, moderate pace for an extended period of time. Current economic data points towards a similar growth trend and is expected to endure longer than most growth cycles.

This calm can be observed in volatility data; a measure that uses market fluctuation to estimate risk in equities, currencies, commodities and bonds. Market volatility is at its lowest level in the past seven years.

The environment is finally providing the conditions necessary for investment in equities over bonds as companies and consumers find comfort in spending.  Over the long-term, the bond market will also benefit as returns will eventually return to more attractive levels.

This does not mean that the crisis is eventually over and forgotten. This period is characterized by low returns and is particularly sensitive to bubbles as investors tend towards excessive risk-taking. The risk-return profile of investments is not always ideal

This morning European stocks gained as five stocks climbed for every three that fell. The positive momentum followed results that beat estimates by Repsol, BT Group Plc and Vallourec SA. Italian tire-maker Pirelli’s profits fell short of expectations. Comments by Russian Premier Putin indicating a turnaround in his position on eastern Ukraine also provided optimism.

Earlier this morning Chinese shares climbed marginally on good export data, a combined result of yuan’s depreciation and the Chinese government’s efforts to support trade amid weak domestic demand. In the commodities market Nickel and Palladium continued to surge. These metals are currently subject to supplies constraints as the two main production regions, Thailand and Russia are subject of a form of unrest.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

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