This week’s promise of snow brought a feeling of calm excitement and a promise of hot chocolate and fires. Imagine the surprise when I woke up this morning to find nothing more than a frost on the car. Perhaps the weather man would like to explain to my children why they won’t be needing their snow suits.
Much like the weather markets can be unpredictable and changes can come from anywhere in the world. Whether that’s the polar continental air mass from Russia bringing a cold spell, or changes in prices in China impacting our wallets. This week I look at the changes from elsewhere that could have an impact on our wealth.
Producer price index in China
The producer price index (PPI) is a measure of inflation, but instead of measuring the prices consumers pay it looks at the price manufacturers receive for their products in the wholesale market. You’d think that if producer prices are accelerating, this should translate into higher consumer prices over time.
Historically China’s PPI has been low, for a long time it has even been negative, but it is beginning to pick up. To some extent, we’ve all benefited from low producer prices in China, as the country exports a lot of what we see in the shops.
If PPI in China continues to increase, we could see an impact on the prices we pay for various goods over the course of the year. This change goes beyond investing and instead puts pressure on budgeting, this could be one of the things to surprise your pocket book in 2017.
Market valuations in the US
Since Donald Trump was elected in November US equities have rallied, this is based on expectations of tax reforms, faster growth, and de-regulation. Each of these mean that companies could have the opportunity to earn more money.
But is the Trump-eting just a little too loud? The forward price earnings are a standard measure of assessing the value of a stock. This is one measure investors can use to decide whether or not a stock is cheap. It’s human nature to want to pay less for something that will give us more in the future, but it’s not always this straight forward.
The forward price earnings for the US is now sat well above the average over the last ten years. It’s even above the standard deviation. But this has happened before he’s been inaugurated and before any of his policies have been put into action. There is a question around whether this optimism is well placed?
Are things looking up for the Eurozone?
The Eurozone has had an uphill battle since the financial crisis, some might even go as far to say it’s dead in the water. As a result of struggling growth, interest rates have stayed low, even as some parts of the Eurozone, like Germany, have performed much better than others.
Maybe things are changing a bit. Inflation expectations have begun to increase, and the most recent industrial production figures for Europe, and Italy in particular, came in stronger than expected. It will be interesting to see how, or if, the European Central Bank reacts to this, given that much of the Eurozone still seems to be in quite a fragile state.