The global economic rebound may be weaker than you think

Canaccord Genuity portfolio strategist Martin Roberge believes another round of stimulus may be required for risky assets to move into a higher trading range.
The most likely source is the European Central Bank, as he noted that deflationary forces are mounting in the euro zone.
While the negative impact of harsh winter conditions has passed, the much-awaited economic rebound in Q2 may not be as strong as anticipated by many investors,” Mr. Roberge said in a research note.

He pointed out that forward-looking indicators suggest a softening of global economic momentum as the OECD LEI diffusion index dipped for a third month in a row to 65%.

Mr. Roberge also noted that momentum is waning in developed markets and balancing out in emerging-market economics, with recent data pointing to stabilization rather than acceleration in Q2.

But the strategist also noted that a move in the euro above US$1.40 appears to be a pre-requisite for the ECB to embark on a stimulus program.

Mr. Roberge suggested another potential catalyst to send stocks higher could be broader monetary reflation in emerging markets.

China has reduced reserve requirements for banks while at the same time putting through stimulus packages aimed at boosting spending on railways and other construction projects.

“Elsewhere, inflationary pressures could be at a tipping point,” the strategist said, adding that Canaccord’s inflation diffusion index for emerging markets is peaking. “A more visible improvement would likely signal the end of the monetary tightening cycle in several countries.”

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