Weak but persistent recovery driven by caution

14.05.2019
The optimism continued in April where MSCI World (in euros) delivered a return of just under 4.0 percent, while long interest rates rose as a consequence of slightly higher inflation expectations.

During the course of the month, we saw a series of key Eurozone figures that showed a consolidatory trend. Despite the fact that the OECD’s leading indicators for the Eurozone are still showing a declining trend, it is a clear sign that the Eurozone’s immediate future looks brighter than first feared.
 
These are some of the key points from Sparinvest chief strategist David Bakkegaard Karsbøl.
 
Over recent months the length of the recovery and the interest rate curve’s inversion has given rise to many discussions and expectations of a coming recession. It is my clear impression that there are many reasons for a recession, and two recessions in a row will almost always have completely different causes. Despite everything, the players in the market will have the first recession fresh in their memories.
 
If we are to go looking for the most likely cause of the next recession, it will probably be found in the market for corporate bonds, which has pushed the problem over to the business sector instead of private households and banks. Today, many businesses are deeply dependent on continuing low interest rates and big risk appetites among investors.
 
This has resulted in their effective interest payments and credit spreads being at rock bottom. In addition, covenants (financial limitations for bond issuers) on a large part of the market are now worryingly relaxed, which historically has been a good indicator of when the market has been too optimistic and greedy.

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