Successful market timing between equities and cash requires high skill levels. Very low official interest rates, through their impact on market rates, create a disincentive for doing market timing because they increase the break-even skill level. The same applies for quantitative easing. These considerations are important from a financial stability perspective. Growing investor reluctance to do market timing will probably lead to a decline in equity market volatility and an increase in equity valuations. The former provides a false sense of safety whereas the latter increases the sensitivity to negative news and hence increases the riskiness.
The world composite PMI hardly changed in September, despite a rather significant decline in the Eurozone, driven by Germany, Italy and Spain ; Japan and Russia edged higher. The world manufacturing PMI was unchanged in September. Supply chain disruptions and supply bottlenecks continue to weigh on activity levels.
According to our Pulse, the economic situation in the euro zone remains good (the blue area exceeds the grey hendecagon indicating the long-term average of the various indicators) and is relatively stable relative to the previous three months (the blue area is close to that delimited by the dotted line), with the notable exception of retail sales.
One of the shocking paradoxes of America, cradle of the miracle of vaccines against Covid-19, is that the country is still seeing daily death numbers in the thousands. The still-too-deadly wave of the epidemic over the summer may have contributed to the slowing of the recovery in employment.
The number of daily new Covid-19 cases reported worldwide continues to decline. Meanwhile, there has been a recent drop in visits to retail and recreation facilities in France, Italy, Belgium, Japan and the UK, but continued increases in Germany, Spain and the USA. It is worth noting that in Belgium such visits are still at their pre-pandemic levels, despite recent falls.
