On Friday, the released US jobs data was a huge positive surprise. This coupled with a weakening dollar gave the stock market its perfect fuel cocktail. Risk-averse investors who were holding back seem to be taken by surprise. The surprise factor can instil much-needed confidence and calm nerves in global equities.
But, the economic fundamentals are persistently weak and the near-term growth outlook is negative. This means we aren’t going to see a sharp economic pullback across the world. Most governments have little leverage to pump back their economy into growth. The US is an exception and is trying to make the most of this crisis. Leading up to a bitterly fought election, the US economy will take whatever it gets as capital, both political and economic, to normalise.
The economic realities of developing countries can contrast sharply with the developed world. But their resilience and ability to bear near term pain could come in handy. Developing countries need to tighten their belts, hasten their recovery, and stabilize their economies. India has just begun the process. Banks’ ability to provide capital to distressed businesses will decide the fate of these initiatives.
For now, the positive US job data is a much-needed tonic to tired equity investors.