BMO Harris Private Banking Outlook: Improvements in U.S. Economy and Eurozone Boost Investor Confidence
- U.S. housing market improves and non-manufacturing index rises
- European Central Bank policymakers' bond buying program demonstrates commitment to keep the Eurozone intact
- Slower European growth has negative impact on China
TORONTO, ONTARIO--(Marketwire - Sept. 19, 2012) - With all eyes on the upcoming U.S. election and the ongoing sovereign debt situation in the Eurozone, BMO Harris Private Banking's latest Market Commentary Outlook notes that modest economic improvements, combined with anticipation of additional stimulus measures, in the U.S. and Europe have bolstered investor confidence and contributed to positive equity market returns.
Highlights from the report include:
More optimistic economic data emerged from the U.S.:
- The pace of growth is steady and will likely continue at a modest pace over the next 12 to 18 months as the government tackles its debt and reduces spending.
- Over the summer the housing market improved and in August the non-manufacturing index rose more than expected, demonstrating that the services sector of the economy continues to expand.
- Job creation in August was less than expected, but greater than average monthly rate during the second quarter of 2012.
- U.S. stocks have outperformed world equity markets by a wider margin than in the past 14 years as a result of relatively attractive valuations.
"As we near the end of Q3, we have reason to be optimistic that the poor economic results we witnessed in Q2 were the exception rather than the beginning of a new trend," said Richard Mason, Head of Investment Management at BMO Harris Private Banking. "A critical factor in the coming months will be the outcome of the U.S. election and the impact of the tax and spending debates that will be needed to address the country's fiscal cliff."
The credit situation in Europe and its impact on business, consumer and investor confidence has modestly improved:
- The recent commitment by the European Central Bank to lower countries' cost of borrowing by buying debt is evidence of policymakers' commitment to keeping the Eurozone intact.
- Leaders in Europe appear to have the will and ability to resolve the credit situation without any systemic damage to the financial system.
- Bond yields are expected to continue to trend downwards, demonstrating lower perceived risk over the next 12 to 18 months.
"While constructive work is underway in the Eurozone, establishing a resolution will be a slow process," commented Mr. Mason.
Slower European growth is having a negative impact on China; however, China's policymakers appear committed to stimulating enough growth to engineer a soft landing for their economy.
Mr. Mason noted, "With a change in Chinese leadership underway, we expect further policy decisions to be made over the coming months in support of economic growth."
BMO Harris Private Banking encourages investors to work closely with an investment professional to determine the appropriate investment plan and strategy for their distinct needs.
To view the full report, please visit: www.bmo.com/harrisprivatebanking.
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Rachael McKay, Toronto
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