Global weekly: Fear versus fundamentals

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ABN AMRO Private Banking

Fear has dominated markets so far this year, pushing fundamentals, which have actually improved, to the sideline.

The uncertain start to the year caught investors and analysts off guard. There are concerns about the state of the global economy, recent developments in China, the further depreciation of the Chinese yuan and the slide in oil prices. It is clear that fear has dominated fundamentals so far in 2016, while fundamentals have actually improved.

The eurozone economy is growing at a reasonable pace and does not appear to be affected by the financial turmoil or negative trends in the Chinese economy. Recent eurozone data, including German factory orders, has been encouraging. In the US, domestic demand remains robust, and while US manufacturing has dipped, we expect conditions to improve. US employment is also strong.

In China, new data shows that trade actually recovered at the end of last year, providing tentative positive signs of improvement in global growth prospects. In yuan terms, Chinese exports rose by 2.3% year over year. It is the first increase in exports since June and may hint at some strengthening of global demand. It is also likely influenced by the depreciation of the yuan versus the US dollar and changes in China’s exchange-rate regime.

ABN AMRO Group Economics remains cautiously optimistic on the outlook for 2016. The current market turmoil is not justified by economic fundamentals.

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