US asset class outperformance to continue
US equities, bonds and the currency have been the best performers across asset classes over the last one year period. The strong performance of US assets will continue going forward given that it has become a safe haven country for investors who do not know where to run with their money. Table 1 shows the performance of equities, currencies and bonds across the globe.
The US economy is looking much stronger than other economies on a relative basis. The economy is growing and creating jobs albeit at a slow pace. Inflation is staying low. The US housing market is showing signs of stability at depressed prices. Conditions for growth in the US is positive with the US Federal Reserve (Fed) maintaining record low interest rates and providing enough liquidity to the system.
US GDP growth for first quarter of 2012 came in at 2.2%, which was lower than forecasts of 2.5%. However in comparison to the Eurozone growth rate of 0% for the first quarter of 2012, the US economic growth is seen as more robust. US economy has been adding jobs consistently month on month for the last one and half years and its unemployment rate has come off from levels of 9.5% to 8.1% over the same period. Job growth in the US, even if below trend levels is an indicator of an expanding economy.
US inflation as measured by the CPI (Consumer Price Index) has come off from 3.6% to 2.3% over the last one year. Inflation staying calm in the US gives the Fed the ability to maintain accommodative monetary policy. In contrast to the US, several countries across the world including India have been facing rising inflation and this has resulted in tight monetary policy in these regions despite threats to economic growth.
US house prices inched up for the second straight month in March 2012 while US home sales for April 2012 rose close to two year high levels seen in January 2012. US housing markets are showing signs of bottoming out and slowly coming out of a slump.
US economic performance, while not strong by historical standards, has been reasonable given the issues surrounding the world. Eurozone economy is looking to go into recession rather than grow and high debt levels are pulling down growth in countries such as Italy, Spain and France. Germany is the stand out economy in the Eurozone with unemployment at two decade lows, consumer and business confidence stable and a property market that is looking up. However s strong German economy by itself cannot pull up the Eurozone.
Emerging economies are facing headwinds with China trying to control inflation and a property bubble, India reeling under a weak currency and Brazil and Russia feeling the effects of falling commodity prices. Japan is fighting a strong Yen that has risen by 40% against the USD and by 70% against the Euro over the last five years.