Wednesday, May 27, 2009
Recovery or just getting less bad?
The 'Green Shoots' are becoming more widespread in terms of data releases within the US but also geographically as reports about Green Shoots are spreading across the globe. Still whether this will be a real, longer-lasting recovery, a shorter blib in growth followed by a double-dib or whether this will turn out to be just mirrored with GDP shrinking less fast (i.e. growth being less negative). While I personally believe in the second scenario (with an overall multi-year adjustment period to the previous excesses where we should expect qoq growth rates to oscillate around 0% for a prolonged period of time), the truth is that we just do not know yet. But what we know by now is that compared to the consensus scenario earlier this year, things are starting to look less dire indeed. And for the markets, less dire means brighter. We are still in the process where the outlook is becoming less dire (consumer and business sentiment is improving, growth expectations are raised again etc.). In turn, the recovery in risky assets - albeit starting to look extended - does not seem over yet. I believe that only once the upward correction in sentiment and growth expectations is over (which will probably take another few weeks) could we see more than just correctionary bear moves. While government bonds should face more headwinds in the short term, I expect that over the next 1-2 weeks government bond yields should stop rising, slowly followed by yields trending towards the 3% again for 10y Bunds and UST during summer.