Negative economic data are currently dominating the markets. The data situation in China in particular has deteriorated noticeably. For the time being, the Middle Kingdom is not providing any positive impulses for the global economy. Most companies have revised their outlooks downwards. Cyclically sensitive equities are relatively weak and important industrial commodities are losing ground. The bond markets are also sending serious signals, with corporate bond spreads increasingly pointing upwards as investors doubt the solvency of companies and demand higher risk premiums.
In view of this situation, it is surprising that global stock markets have not sold off more strongly recently. One explanation for this is global monetary policy: central banks continue to be ultra-expansive and provide the markets with ample liquidity. This has led to a situation in which even bad news is interpreted positively by market participants - according to the motto: weak economic data ensure a continuation of the generous supply of liquidity by the central banks. In the medium term, however, there are signs of a liquidity brake: the European Central Bank has already announced that it will moderately reduce the volume of bond purchases at the end of the year, and the US Federal Reserve is likely to follow suit in the coming weeks or months. If liquidity then becomes scarcer again, the market will react with "withdrawal symptoms".
Despite catch-up potential, European equities have not been able to post sustained gains in recent months - partly because they are heavily dependent on business in China. The upcoming Bundestag elections are also causing caution: according to current surveys, Germany is threatened with a shift to the left or at least a very tough government formation and thus a prolonged period of uncertainty. However, these risk scenarios should soon be largely priced in by the markets and therefore only temporarily dominant.
In China, on the other hand, the picture is so weak that stimulative fiscal and monetary countermeasures can soon be expected - again in line with the motto: "Bad news is good news." So despite the negative factors, professional investors should not write Europe off entirely.