Further gains in global equities lie ahead, Kepler says
Global equities to extend gains from February lows in second half of 2016
S&P to rise past 2,075 to 2,100 point area as profits improve
Signs of easing deflation will make it easier for Fed to hike rates
Brexit expression of risk of political disintegration in Europe
Updated : 15:55
A rally in global equities since their February 2016 lows had further to run, as evidence mounted that deflationary pressures were easing, in turn allowing the US Federal Reserve to continue tightening policy "without causing trauma", analysts at Kepler Chevreux said.
In the case of the S&P 500, the analysts said it should be able to move up towards the 2,075-2,100 point area "before long", although a period of consolidation would be necessary before the gains could be extended beyond that zone of 'profit-taking and portfolio protection'.
For the broker, the weeks of May and June were set to be "difficult" for risk assets, as markets begin pricing in a rate hike by the Fed come June and speculation surrounding the risk of Brexit paralysed investors.
Banks continued to be the 'missing link' in the story of equity recovery in Europe, the broker said, but it was the UK referendum which had provided a focus for the expression of the risk of Europe´s political fragmentation.
Nevertheless, the backdrop in markets had changed for the better, although a large part of the investment world did not want to believe in the revival, Kepler said.
"The pattern of market recovery and relapse of the last 6-9 months has been broken. [...] The context has changed. The Fed can adjust the funds rate without causing trauma if there is evidence that deflationary pressures are receding," the broker said in a research note sent to clients and dated 29 March.
"There should be more investor conviction and participation in the year’s second half because asset rotation should be largely exhausted by that time, whilst the recovery of company profits should be more apparent by then."