Quote of the Day
Every renaissance comes to the world with a cry, the cry of the human spirit to be free.
A very strong short covering rally engulfed most all risk asset markets on Tuesday as more and more participants seem to be expecting some sort of positive outcome from US Fed Chairman Bernanke's Friday morning Jackson Hole speech. The expectations are building but the market could be in for a disappointment. The other side of the view that the Fed Chairman will not announce anything significant on Friday has crept back into the markets in overnight trading as most all of the Asian equity markets traded lower with US equity futures currently pointing to a lower opening on Wall Street this morning. Over the last month or so all risk asset markets have experienced an above normal level of volatility with many intraday and day to day price reversals. At the moment the equity markets are in the midst of yet another one of those reversals while oil prices hover around the unchanged level (except for RBOB gasoline which is solidly lower on a bearish API number).
Bottom line is market participants at every level of the trading/investing infrastructure are uncertain and unclear as to where the global economy goes from here....does it continue to weaken or is this still just a soft patch that will turn around sooner than later? More than anything else the various views around the previous question is the main value driver for all risk asset markets around the world. The trading/investing world is still clearly in a macro or systemic trading pattern....everything goes up or everything goes down. Individual fundamentals for individual risk asset markets are still only playing a minor role in price setting. I expect this pattern to continue until there is more clarity as to the future state of the global economy.
The global equity markets did get a boost with yesterday's short covering rally in the west as shown in the EMI Global Equity Index table below. Although the rally did not carry over into the Asian markets (where the skepticism is emerging over what Bernanke will say) the Index is still higher by 1.5% on the week narrowing the year to date loss to 17%. The overall Index is still on the cusp of meeting the criteria for a bear market...a decline of 20% or more with Brazil remaining over the bear market threshold. The global equity markets were a modest support for oil prices as well as the broader commodity complex on Tuesday but overall equities have been a negative price driver for oil. In spite of the occasional short covering rally like we experienced yesterday global equities have been trading and seemingly already pricing in a return to a double dip recession in the developed world and an ongoing slowing of the economies of the developing world as a result of monetary tightening in that region of the world. Equities tend to be a decent leading indicator of the forward economy and based on the equity market trading pattern the global economy is likely to continue to languish.