Q1 down, three to go

There are two trading days left in the quarter and barring the underperforming US markets, the developed world will log one of the most impressive starts to a year in the post-GFC era.

US markets
Source: Bloomberg

The stand out is Europe; it is having what can only be described as an investment renaissance, as the environment is perfect for investing:

  • A stimulating central bank
  • Next to no inflation (keeping the stimulus taps on)
  • Zero interest rates
  • Exporting economies
  • High-end manufacturing

These factors perfectly illustrate why theDAX is the index in which to be invested. It remains on track to see further upside over the coming quarters, as the EUR will slowly march towards parity and the ECB injects further funds in the form of euroQE. All this makes German-manufactured goods continue to appear ‘cheap’ and the DAX well bid.

Japan’s first quarter is very similar to that of Europe – as it too is near enough in the same environmental situation:

  • A stimulating central bank (with the possibility of that increasing as inflation stalls)
  • No inflation (building concern of disinflation and that it will be unable to reach its targeted 2%)
  • Zero interest rates
  • Exporting economy
  • High-end manufacturing
  • Central government looking to build confidence and a consuming nation

The Nikkei continues to be flirting with 20,000 points, which is a level not seen in almost 15 years. Like Europe, the JPY is a major assistance to the economy as Japanese goods follow their major manufacturing competitors in Europe in a race to the cheapest goods.

The USD remains well bid despite the Fed’s now ‘opened ended’ comments about when it will move the Fed Funds Rate (FFR). Japan looks like it will continue to power ahead in the coming three quarters, as the US underperforms its global peers and Japanese companies benefit from the global environment.

Australia is the odd one out here - yes it’s not a manufacturing economy nor is it undertaking unprecedented monetary printing.

However, Australia has:

  • A stimulating central bank (interest rates are being slashed)
  • Inflation is on the slide and is very likely to side under the comfort band

However, export prices are plummeting

  • Its service industry is lacklustre
  • And its ability to transform its economy is slow

Australia will log one of its best quarters of the post-GFC era, however Australia does not have the support from its central bank like Europe and Japan do. The falling commodity price will also impact the public purse, as the infrastructure spending currently promised may not fully eventuate. The first quarter may have been positive; the following three quarters may not be as strong as its Japanese and European peers.

Ahead of the Australian open

We are calling the ASX 200 down 41 points to 5881 - the sell-off is likely to be mixed over the next 48-hours, as managers balance quarterly positions. This is likely to see peers doing moving in opposite directions and slightly stronger than expected.

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