NEW YORK Europe
may be a cheap investment location for savvy equities
investors, but the improving outlook in the United States is
making the worlds biggest economy a lot more attractive
to commodities companies.
and economists said that while European stocks are seeing fund
inflows reach multi-decade highs, the United States is
experiencing a revival on the productivity side, particularly
after the U.S. Federal Reserve signaled the era of cheap money
was coming to an end.
"Europe has lost due
to low growth and a weak economic activity level, especially in
southern Europe, although indicators for Europe have improved
lately. Generally, productivity in the U.S. has been better
than in Europe, which also makes the U.S. more attractive than
Europe," Luvata UK Ltd. chief financial officer Jyrki Vesaluoma
Vesaluoma, general business demand risk in the United States
has fallen due in part to a far more stable outlook over the
past 12 months.
"It is assumed that
the U.S. dollar will strengthen further against the euro (...)
which may change the competitive position of many U.S.-based
companies and business decisions if the stronger U.S. dollar
level remains," he said.
costs are also higher, including energy, raw materials and
labor, which has led to aggressive cost-cutting measures from
producers and consumers alike.
Similarly, the inverse
correlation of the U.S. currency to metals prices means the
stronger dollar is weighing on prices for key commodities such
as copper and aluminum.
However, what the U.S.
economic recovery adds to metals demand it may take away from
emerging markets demand, at least in the near term,
Goldman Sachs Group Inc. analyst Max Layton said.
The Fed has a dual
growth and inflation target, something that makes its monetary
policy more volatile and reactive than pure inflation-targeting
tighter Fed policy in the form of a tapering of asset purchases
has led to the exodus of capital from emerging markets, a
process that has seen the currencies of countries such as
India, Brazil and Indonesia depreciate significantly.
"The underlying issue
remains macroeconomics and the question of whether capital will
continue to flow to emerging markets as their economic
prospects become somewhat less positive," KCG Europe Ltd.
managing director Ioan Smith said.
There are two positive
factors that lower the probability of a serious crisis, Smith
said: increased regulation and a reduced inclination by
emerging markets to use foreign exchange reserves to defend a
particular exchange rate.
"To the extent that
these countries can allow their currencies to depreciate
modestly as capital flows out, they will naturally tend to
increase their exports and reduce their imports, thus tending
to reduce their current account deficits and lower their future
funding needs," he said.
At the same time, lower costs than Europe and the United
States mean the region will remain attractive to global