Minsky moments?

World markets this week are back in business after the Easter lull, with global investors looking ahead to what the rest of the second quarter holds after a first quarter marked by volatile equity markets and a rally for bond markets. The US Federal Reserve's gradual taper of its quantitative easing programme is heading, at its current pace, towards an exit point later this year. Meanwhile, investor concerns linger over the lack of reaction from the European Central Bank to the risk of ultra-low inflation tipping into deflation. But the slowdown of emerging markets and the Chinese economy look to be the crucial developments for world markets over coming months; together with Russia's designs in Ukraine and on other former Soviet Union territories.

Strong US economic data has pointed to the first-quarter weakness as weather-related rather than signs of a deeper malaise. Retail sales in March rose by the most since September 2012, while industrial production last month exceeded expectations. US government bonds came under pressure, however, as uncertainty continued over Ukraine. Ten-year US Treasury yields rose 8 basis points (bps) last Thursday to 2.72%. Fed chair, Janet Yellen, has continued to try to corral market conjecture on an early US interest rate rise. Yellen last week suggested that the US economic recovery might not be able to push inflation to her 2% target, which would raise the need to keep interest rates at near zero for longer. The comments in New York have already helped delay market expectations of a rise in the second quarter of 2015 until the second half of the year.

This week's bulletin also includes:

  • Global stock markets closed for the short Easter week on a positive note amid strong US earnings and economic data.
  • Corporate and government bonds are back in favour as investors drive a broader rebalancing between assets.
  • Momentum investing drives assets further from real values and risks asset bubbles.
  • The earlier an individual starts to save and invest, the greater the rewards of compound growth.

View this week's Market Bulletin, which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.

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