Investor Discomfort
15-08-2011
Where shall any analysis begin taking into consideration the wild broad markets last week? In simple terms investors displayed their lack of confidence and punished equities. The complex answer is however much more intricate, but essentially boils down to a distrust of the financial engineering that governments are trying to undertake. Many investors believe that data signals an economic downturn around the corner. These same investors have a myriad of recent events that have in essence caused reluctance to believe in the well being of the markets. A short list is the financial stability of European banks, the ratings of Debt from the U.S., austerity plans issued from Italy, the Sovereign Debt crisis within the E.U., and the overall downturn in consumer sentiment globally. This week will be relatively light with economic data which may allow for some stability to develop, but this will depend heavily on how governments are able to maintain their ‘Confidence Game’, which has fallen flat in many instances the past few weeks.
As global equity markets have been fast and dangerous, the Forex markets have been relatively tame in many respects. The JPY and CHF have remained safe heavens. Both the Japanese and Swiss currencies have plenty of chatter surrounding them as rumors swirl regarding more interventions by their respective Central Banks. The EUR/USD remains curiously within its known ranges along with the GBP. The AUD has lost ground against the USD and this is a result perhaps of a worsening economic outlook, even as Gold has powered ahead and claimed record highs. The precious metal as of this morning is 1739.00 USD an ounce. One barometer for the AUD may in fact be the price of Crude Oil which has remained under some pressure along with many other physical resources as questions about demand persist.
The Empire State Manufacturing Index will be released today from the States and Thursday will see the Philly Fed Manufacturing report. The fact that the Fed Indexes have turned in disappointing results the past couple of months is reason for additional concern regarding these numbers, but the fact is that investors will be looking at the broader picture this morning and all week regarding their own participation. Investors more than anything would prefer to see some semblance of stability and one mere day of this is unlikely to be enough to calm everyone’s nerves.
The news that continues to come from Europe and the U.S. has been discomforting in the sense that it still seems unlikely that any profound answers are going to be delivered soon. Fear of a new credit crisis has caused an earthquake in the global equity markets and the question many are asking is if what was felt last week was merely warnings of a bigger storm to come or the actual big event. Give the notion that August is generally a quiet month while investors tend to be on holidays it stands to reason that September and October will see additional fireworks. Today’s trading session should be entered with a cautious approach.
