In the financial community it is now speculated that the global economy and markets in 2015 look like 2014: a soft global growth but supported by a resilient US economy, central banks always attentive to maintain generous liquidity conditions, and therefore ever lower rates, especially in Europe where growth is lowest and the Central Bank at the bedside. And, as the result, invariably weak euro and bond markets, and modestly favorable shares.
Where this broad consensus could be wrong? To answer this question, it already seems necessary to point out that this center channel is very narrow in reality. The scenario of a global economy, low enough to maintain a highly accommodative stance of central banks, but strong enough to maintain investor confidence takes the perfect alignment of the planets.
Continuing to make progress on a ridge between tipping into deflation (as foreshadowed the recent collapse of oil prices) and further rising interest rates in the United States (as would justify the recent dynamics of the creation of jobs) is for the markets an equilibrium position for lesser volatility.
So first double risk of worsening deflationary pressures (markets might begin to doubt that central banks can curb) and a faster than expected upturn in the US economy, it must be carefully considered.
Then keep in mind that low growth is weak definition. As a cyclist moving at very low speeds, it can be unbalanced by the slightest gust of wind. We saw in the US last winter (it is true that that it was particularly cold wind) or Japan in the spring when a small increase in VAT was enough to switch back the country into recession.
An external shock, be it geopolitical (Russia), political (Greece), financial, in the weather, today is a risk not to be ignored.
The outstanding role of ECB
Finally, there is the currency. The ECB would then input “at war” to finally give the euro area economy the benefit of a more competitive currency.
But building on this new weapon to forge optimism on European stock markets are two pitfalls. First, this weapon has yet to prove its power. The ambition of creating money displayed by Mario Draghi is currently well below that of Haruhiko Kuroda, Governor of the Bank of Japan.
Moreover, the investor of the Old Continent must ask the question: assuming European equity markets appreciate for example 10% in 2015, but at the price of one euro down 10% would it make anyone richer by the end of the year? The answer will appear very clearly when one wants to spend his next vacation outside the euro zone.
The worst is never certain, and predicting “black swans” falls within the oxymoron. This means investing in a world where liquidity is no longer reported. We still need to do this with eyes wide open.