Never let the facts get in the way of a good story seems an apt way to describe this current stock and risk market rally which continues to levitate above deteriorating global economic fundamentals. Data out of China late last week gave a clear indication of a deteriorating export situation which speaks volumes of the lack of global aggregate demand.
But at the close of play stock markets in the US were higher (they rallied into the last couple of hours trade) on hopes of stimulus and more stimulus and I guess more stimulus until it eventually works. The Dow finished up 0.32% to 13,207, the S&P 500 was up 0.22% to 1,405.87 and the NASDAQ rose 0.07%. In Europe however stocks were more focussed on the data – the FTSE fell marginally by 0.08%, the DAX dropped 0.29%, the CAC dropped 0.61% and Madrid’s stock market was 0.76% lower. Spanish bonds were up a little to 6.91%.
This market is still climbing a wall of worry. While the S&P has backed off a little from the 3 month high set during the last week the conundrum of the differing time frames and risks that face the economy, markets and investors is the gordian knot of 2012. I still maintain that the market is being held up by those who fear missing out on the rally as opposed to actually believing in the underlying fundamentals. Let’s face it, though, it is ever thus.
So building on the quote last week I included from a fund manager saying he was worried about being too bearish here is a great piece I got from Reuters over the weekend:
David Joy, chief market strategist at Ameriprise Financial in Boston, says it’s an uncomfortable time for many investors, who are caught between missing a rally and getting blindsided by some nasty event that sends markets into a tailspin.
“It’s a dilemma that is uncomfortable to watch and to function in,” said Joy, who helps oversee $571 billion in assets. “It’s one of those markets where you’re running a big risk being out.”
Joy says the rally is being driven by the hope of more “easy money” policies from central banks in the United States, Europe and China.
He has had doubts about the strength of the economy for many months. At the same time, he has been worried by the recent spate of cautious outlooks from corporate managers. But he also knows what investors ignore at their peril: “You can’t fight the Fed.”
“I don’t like the fundamentals, I don’t like what I’m seeing economically, I don’t like what I’m seeing in terms of earnings forecasts going forward, but I recognize that central banks can trump all of those things,” Joy said. “You may be right on the fundamentals, but wrong on the price action of the market.”
And there you have it – strategy and tactics. It is a topic I write about in Macro Investor this week. If you haven’t subscribed you can still get a trial.
On Commodity markets the CRB dropped 3 points or about 1% with some big falls in a number of markets. Natural gas was off 5.82%, Cotton fell 4.01%, wheat was down more than 3% and corn dropped 1.79%. I get a sense we may have seen a top techincaly in the grains.
On FX markets it was another range bound day without any clear direction. The Euro traded 1.2246-1.2315 closing at 1.2288 down 0.11%. The Aussie pushed down to a low of 1.0503 before rallying back with the equity markets late in the day and finishing just off its high for the day of 1.0577. Overall there is little action or direction in FX markets at the moment other than the very short or the very long term moves. So traders need to be careful as the time frames compete.
My trading platform isn’t working today which so please excuse the lack of charts.
DATA: I’m looking for the data out of Japan today on GDP as the key for me but later this week we will have some important GDP data from Europe and also the NAB Monthly Business survey and the Westpac consumer confidence numbers.
Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.
And here is how the markets closed at 6.00 am Saturday Morning courtesy of AVATrade
Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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