Waiting for reality to arrive

Article Abstract:

Drops in bond yields are usually seen as good for equities, but this is not always the case, and German bond yields have dropped to record lows since Jul 1998, while stock prices have also fallen. The world economy has become more unstable, and the equity risk premium has risen. Bondyields have dropped with falling inflation expectations, and companies cannot push up prices as easily when inflation is low. Economists foresee lower earnings than analysts, and a cut in earnings expectations is needed fo markets to represent good value over the short term.

Interest Rates, Government securities

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Risk matters

Article Abstract:

European stock prices could continue to rise, according to Salomon Smith Barney, which sees a rise as possible even if bond markets experience a sell-off. A number of factors are boosting demand for stocks, and they include lower short term rates of interest and increasing usage of funded pension schemes. European equities also offer better values than some other markets. A drop in the equity risk premium could also help boost European stock prices.

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