Are we in a new debt bubble? Fund managers, policymakers and pundits are asking this question more and more as of late. Yngve Slyngstad, the chief executive of Norway’s Government Pension Fund Global, became the latest major investor to express concern over the long-term impact of ongoing central bank easing last week. Rising debt levels in developing markets, particularly in China, as well as a rush by yield-hungry speculators into higher-risk bonds in the U.S. and Europe, have brought much of the world back to pre-2008–’09 financial crisis levels. As was the case in late 2007 and in 2008, extended bull markets for property values have been singled out as potential canaries in the coal mine. For U.S. dollar-denominated assets, the obvious catalyst cited to pop this bubble is presumed Federal Reserve tightening. Despite such concerns, many analysts believe that, for better or worse, the party can continue for quite some time. In a note to investors, Brian Reynolds, chief investment strategist at Rosenblatt Securities, wrote, “The bull market has kept going and is likely to keep going, no matter what the Fed does, until sometime after the yield curve inverts. That is because this bull market is being driven by credit flows that are being generated by our nation’s pensions — especially by our public pensions.”
Monday, April 20: In Europe, German producer price index levels for March are expected to confirm that commodity input levels remain weak relative to recent historical averages. After blockbuster results from rivals Goldman Sachs Group and J.P. Morgan Chase & Co. this past week, first-quarter results from Morgan Stanley will place CEO James Gorman under the microscope.
Tuesday, April 21: Investors will parse Japanese March trade data to gauge any impact of the Bank of Japan’s massive easing program on shipments abroad. ZEW sentiment indexes will be released in Germany on Tuesday, with expectations for modest improvement as the European Union’s largest economy continues to show signs of picking up steam. Yum! Brands’s earnings announcement will be of particular note to analysts: the stock is a bellwether of consumer discretionary spending, especially in China and other developing economies where the iconic fast food giant is dominant.
Wednesday, April 22: The Bank of England’s monthly Monetary Policy Committee vote count will be released, providing insight into the thinking within the bank as rates remain at historic lows. In the U.S. existing home sales will be released for March. February data extended a downward trend from a near-term high reached this past November. McDonald’s Corp., which recently acquiesced to protesting employees by raising wages for some, will release first-quarter results. Questions during the accompanying conference call for shareholders are likely to be pointed as the chain continues to lose ground to middle-market competitors such as Chipotle. Qualcomm’s earnings announcement will also be carefully watched in light of the recent push for a breakup by activist hedge fund firm Jana Partners.
Thursday, April 23: HSBC manufacturing purchasing managers’ index (PMI) data will be released in China, a critical factor as expectations ride ever higher that the People’s Bank of China will respond to softening activity measures with easing. GfK consumer confidence index measures will be released in Germany. Markit manufacturing and composite PMI levels for primary euro zone economies are expected to improve on average, with the divergence between the pace of recovery in France and Germany narrowing slightly. In the U.S. weekly initial jobless claims and new home sales figures for March will be announced. On another day with a heavy earnings release schedule, General Motors and Google’s first-quarter analyst calls are particular standouts, as company executives discuss litigation over safety issues and European antitrust regulations respectively.
Friday, April 24: With the Greek drama continuing to unfold, Friday’s Eurogroup meeting of euro zone finance ministers will be a focus of market risk narratives. In Germany, IFO business climate index release with expectations for the upward trend to continue. In the U.S. consensus forecasts call for March durable goods order data to rebound.
