Despite some hesitation or consolidation generally in markets, Clifford Bennett of Herston Economics still believes equity and commodity markets have further to go on the upside. While some suggest US retail sales were weak, they were actually up 0.8% over December/January when the north was experiencing terrible snow storms.
While president Obama's speech on reducing the deficit is an impressive suggestion, it will never actually happen. The US has a long history of strong talk on deficit reduction, but very poor form on real implementation. The US budget deficit this year is expected to be 10.9% of GDP, far worse than the largest economy in the Euro-zone, Germany, where the budget deficit is expected to be 3.7%. While the US may complain about the budget deficits of a few small economies in Europe, it has neglected its own far worse situation. Fed New York President William Dudley further exasperated the outlook for the US dollar with a speech claiming virtually full credit for the current recovery was due to QE2.
Clifford Bennett notes that the Egypt pound and equity market are strong buys and will probably continue to rally throughout the year. Also good news such as superb inflation number from Germany and strong consumer confidence data from US are likely to lead a strong week for equities and commodities.
Clifford Bennett notes the current state of anxiety in Egypt, but suggests market hesitation is more about acceptance and consolidation of recent strong gains. Given there was also broad market over reaction to Cisco's caution on earnings, he does not expect any significant market pullback. In fact commodities continue to show the way, pointing to the world being caught short during a period of great economic expansion.
We have been bullish oil since below US$40, and our US$145 target for next year remains in place says Herston Economics' Clifford Bennett. The recent selling of oil on the basis that things will calm down in Egypt, the Saudi's will pump more oil, and higher US reserve levels, all miss the two most important points. China and India will add millions of vehicles this year and there are indications global oil production is about to hit peak level beyond which it cannot go.
China raises interest rates and equity markets continue to climb, as do commodity prices. Clifford Bennett of Herston Economics says this is the new paradigm, at last one that fits more accurately with the underlying reality of a strong global economic boom that no one can stop, not even China. Herston Economics continues to highlight that this is a "bottom up economic revolution" driven by individuals and small businesses all around the world.
Clifford Bennett of Herston Economics makes the point that the news just gets better and better. Even the usually of recent years bearish mainstream media cannot find anything but bullish stories to report. US equity markets continue to strengthen, and global growth looks set to accelerate as expected. Herston Economics, among the highest of any forecaster, expects global growth to reach 5.4% this year. This includes 4.3% in the USA, 2.6% in Europe, and 10.7% in China.
The outlook for global equity markets, and especially the Australian market continues to improve. Australian equity markets in particular are still far below their correct fundamental value. Gold and oil, like other commodity markets, appear ready for further strong gains. The Australian dollar is comfortable in this higher band but is still targeting US$1.0800 this year, according to Clifford Bennett of Herston Economics.
After some very strong gains the US equity market continues to cling to recent highs, and can be expected to move higher next week, according to Clifford Bennett of Herston Economics. Clifford remains bullish on equity, commodity and currency markets except for the US dollar. The overnight fall in the Euro is a stand out buy, and not even Egypt concerns can keep Gold down.
It is important to recognize that markets have yet to factor in any of the good news regarding robust growth, not just in china, but Europe and the USA as well. Expect the rally we had forecast to continue and even at these levels Australian stocks represent great value.