Daily Commentary

MarketMinder’s View: This look at Greece’s post-pandemic economic recovery shows how far the country has come in recent years, increasing its attractiveness as a spot for investment in the eyes of some analysts—and how far it fell before it got to this point. “The Greek economy grew by 2 per cent in 2023, outshining the 0.3 per cent contraction in Germany. Since 2019, before the pandemic, the country has grown at nearly double the eurozone’s rate. … Strong tourism numbers—which go hand in hand with improvement in the labour market and the recovery in consumption—are helping. So too are structural reforms aimed at removing obstacles to growth, such as increasing digital access to public services, accelerating judicial decisions, and improving transparency and public finances.” But this dawn comes at the end of a very long night, which has left Greece with some of the EU’s lowest living standards and a severe brain drain. We think this is a good object lesson in how markets work: They look forward, and cyclical factors often outweigh structural. Greek stocks outperformed both Emerging Markets and eurozone markets last year—and thus far year to date, per FactSet. Stocks move most on the gap between expectations and reality, and considering the persistently dour views toward the Hellenic Republic over the past decade, it hasn’t taken much to surprise positively on the economic front. However, last year’s strong returns likely reflected some hope for structural reform once the Greek government boosted its majority at last year’s elections—and it remains to be seen whether Prime Minister Kyriakos Mitsotakis will make good on those high expectations. Those looking at Greece for potential investment opportunities should ask themselves what isn’t reflected in stock prices already—remember, you can’t buy past returns.

MarketMinder’s View: According to the World Bank’s latest commodity report, a major Middle East conflict could cause an energy shock and send oil prices above $100 per barrel—renewing hot inflation. The assumption: “Oil prices could average $102 per barrel if a conflict involving one or more oil producers in the Middle East results in a supply disruption of 3 million barrels per day, according to the World Bank’s latest commodity markets outlook report. An oil price shock of this magnitude could stall the fight against inflation almost entirely, according to the report.” Now, we think this overstates the impact of Middle East tensions, which markets are familiar with by now. It also hinges on the potential closure of the Strait of Hormuz, a fear markets have dealt with plenty of times—the industry has workarounds. With all that said, though, we do think oil prices will climb this year—not sky-high, but toward the high end of 2023’s range—but we anticipate this because production growth in the world’s biggest producer, America, is slowing, not because of geopolitical issues and OPEC cuts, which are symbolic. This should benefit Energy stocks since Energy earnings are oil price-sensitive, likely making their recent outperformance a foretaste.

MarketMinder’s View: This article spills many pixels on ECB officials’ thoughts on monetary policy, and as always, we caution investors against taking central bankers’ words to the, er, bank: They are human and can change their mind based on new developments and data. That said, it is notable the consensus among European policymakers is for a rate cut sooner than later—a contrast to the US, where investors aren’t anticipating a rate cut until the end of the year (at the earliest). To be clear, we don’t think the European economy’s prospects hinge on ECB rate cuts—monetary policy just isn’t as economically consequential as many think. Rather, the commentary is a counterpoint to those who believe the Fed is the first mover, and thus, its decisions preview those of other major central banks. This hasn’t been true historically and it isn’t the case today: Central banks are independent and their decisions are more domestic-oriented than many appreciate, based on conditions and outlooks at home. Now, there is often some broad correlation in those conditions, given economic trends are chiefly global, but that is coincidence more than anything. For more, see our recent commentary, “No, the Fed Isn’t the Icebreaker.”