World markets started the new week on a steadier note after Friday’s first retreat in the MSCI world index after 10 straight gains. But for all the jitters about the impact of a higher euro on European companies, a pullback in oil prices and some eye-catching misses in the U.S. earnings season, the big picture has not changed significantly.
That was underlined by a fresh erosion of implied volatility on Wall St on Friday, with the Vix volatility index hitting its lowest since December 1993. It was also reinforced by the International Monetary Fund’s latest forecasts, which maintained its upbeat 2017 and 2018 outlook for the global economy despite some rotation of the national and regional drivers.
While the global economy is still expected to expand 3.5 percent this year and 3.6 percent next, forecasts for the U.S. were trimmed due to scaled-back fiscal stimulus expectations. But forecasts for the euro zone, notably for Italy and Spain, were revised higher. A poor start to the year for the UK saw downgrades there, but China’s GDP outlook brightened.
This week’s Q2 GDP releases for many of the major economies will be a reality check, as will global flash PMI business surveys for July out later on Monday.
It’s also a heavy week for Q2 earnings on both sides of the Atlantic. While Friday’s disappointment at GE’s update grabbed the attention, aggregate profit growth for the U.S. season so far is running ahead of expectations at just shy of 10 percent.
Japanese and Australian stocks underperformed with losses during a mixed Asia trading session earlier, with Chinese indexes higher. MSCI World is flat, with many now watching to see if it’s a case of ‘10 steps forward, one step back’ or the beginning of a more protracted retreat.
The dollar index was higher so far on Monday, with euro/dollar slipping back after setting a new 23-month high of $1.1684 earlier. Ten-year U.S. Treasury yields were firmer too. Brent crude recaptured $48 after Friday’s slide, with an eye on a ministerial meeting between OPEC and non-OPEC members later. European stocks are expected to open higher, reclaiming about 0.3 percent of Friday’s euro-related shakeout.