Goldman Sachs says financial conditions eased, market sentiment improved

Commentary from Goldman Sachs

(this is via eFX)

Growth

views continue to make progress, as manufacturing data in the US seem

to have turned the corner. The February US ISM ticked higher, regional

surveys have shown incremental improvement on top of that, and the

more-forward-looking new orders to inventory ratio suggests that there

may be more room to run. Over

the last week, the degree of easing in US financial conditions has been

quite large, ranking in the 95th percentile, historically, with nearly

all sub-components contributing to that easing and moving by similarly

large amounts. Although we had been concerned that an improving growth

outlook would give way to restrictive rate views it seems as if

accommodative policy is helping to fuel markets alongside a better

growth outlook. Indeed, market focus on the impact of an easing in US

financial conditions has picked up recently, with relative returns

across global equity indices and across (trade-weighted) currencies

driven by relative exposure to easier US financial conditions. More

broadly, over the last week, as financial conditions have eased, yield

declines have coincided with a pick-up in the S&P, indicative of an

easing shock working through the system as opposed to a growth shock.

This stands in contrast to Europe, where, despite a small decline in

yields, growth views have stumbled and equity markets have not been as

buoyant. Reflecting the

balance between the recent relaxation in risk and lingering concerns,

front-month equity volatility – as measured by the VIX – has declined

sharply and is now below 14 (a low for the year and in line with 2014

and 2015 average levels). Yet, the forward curve has steepened and is at

the wide end of its recent range, with the August contract in the 20

range.es.

An April hike is not our baseline case but is certainly a possibility –

a message reinforced by recent Fed speakers. European geopolitical risk

continues to be a major focus as well on several fronts, as underscored

by the attacks in Belgium yesterday. on its EU membership slated for June 23, a week after the June FOMC meeting, and the refugee situation across Europe. could

intensify as the primary process comes to a close, bringing more market

focus to the uncertainty surrounding the outlook for US policy.

sumber: