Macro outlook - 15 february 2010

Ronald Doeswijk, Léon Cornelissen and Lukas Daalder, Senior Strategists with Robeco’s Economic and Financial Markets Analysis team, share their outlook.

Highlights

• Worries about Chinese tightening, some weaker-than-expected macroeconomic data, the ongoing Greek debt crisis and harsh banking-regulation proposals are weighing on sentiment. In our view, these concerns appear to be overdone.
• After Greece, the creditworthiness of Portugal and Spain are now also in jeopardy. Southern Europe will now have to suffer years of relatively weak growth in order to recover its competitive position. In the worst-case scenario, Greece will be bailed out. It is, after all, too small to be allowed to collapse.
• The global economy continues to strengthen, even though regional differences are increasing. The recovery in Asia is particularly strong and the US is surprising on the upside. Momentum in the eurozone is slowing; the UK recovery is disappointing.
• Corporates’ earnings and sales are surprising on the upside. Even after an extended period of increasing estimates, Q4 2009 earnings are mostly above expectations. As the inventory cycle is in full swing, we expect no negative earnings surprises in the short term.
• We expect investor appetite for stocks to return after a lackluster start of the year. Positive economic news flow should drive stock prices, irrespective of worrying government deficits (especially in Southern Europe). We also expect Chinese economic growth to be guided onto a sustainable footing.
• We have neutralized our view on both Europe and North America: we no longer expect European equities to outperform their North American counterparts, due to the weakness of the euro and the surprising strength of the US economy.