Markets are still volatile as investors work their way through a growing number of worrisome uncertainties in the first weeks of the year. Currency swings and the relentless decline in oil prices threaten to take a toll on US corporate profits as the fourth-quarter earnings season gets underway. In the Eurozone, the European Central Bank (ECB) has yet to make clear its plans regarding sovereign quantitative easing (QE) while upcoming elections in Greece threaten to set the scene for another crisis.

US earnings momentum lags behind other developed markets

Investors find much to worry about in early 2015

Source: Datastream, INGIM (January 2015)

Treasury yields continue lower

The worrying nature of these unknown quantities is reflected in the persistent decline in treasury yields. The drop is not confined to German Bunds; US and Japanese Treasury yields are also showing a firm downward trend so far this year. The riskier part of the spread market, which is indirectly linked to the falling oil price, is not faring well. Spreads for High Yield (HY) as well as for Emerging Market Debt in Hard Currencies (EMD HC) are widening.

Cyclical momentum improving

Fundamentals indicate there may more to look forward to than to worry about. Cyclical momentum in the global economy, which has improved in the last three to four months, seems to have entered 2015 on its most sustainable footing since the 2008 financial crisis. Divergences between different regions remain large and continue to grow, but the increasingly broad-based signs of labour market improvement and rising household incomes in almost all regions offer some solace.