Well it looks like the markets have settled down a bit after last week’s wild ride with volatility contracting a bit and markets looking to trade higher. Despite the roller-coaster action we saw last week, equity markets ended the week down roughly 1.75% which isn’t a huge move in the grand scheme of things.
Stocks in the US are poised to move higher this morning, with European and Asian stocks having positive sessions. It should be noted that the short-sale ban in Europe on select bourses is still in effect. This shifts the focus back to the Euro zone where tomorrow a meeting between Sarkozy and Merkel will attempt to find some common ground on the Euro debt crisis.
The markets are now calling for the establishment of Euro bonds, which essentially would cover the entire region and help stabilize the debt crisis. Germany is against such a move as they would be left holding the bag if the countries with debt problems didn’t live up to their end of the bargain. Stay tuned for developments on this front.
Getting back to economic data, tomorrow will bring both German and overall Euro zone GDP figures which will show the health of the European economy despite the debt crisis they are facing.
Last night, Japan got a boost from better than expected GDP figures which showed that the economy contracted less than expected. This is positive for Japan as the rebuilding efforts from the natural disaster is creating economic activity. In addition, the Japanese Finance Minister was out saying he was prepared to take “bold action” to stem Yen strength, though it is unclear where that line in the sand may be.
The Swiss franc has also been weakening after last week’s comments about a possible peg to the Euro were followed up by new comments that the SNB may set a target rate for the Franc and then do everything they can to defend it. This jaw-boning alone has caused the Swissie to weaken considerable which may mean that the SNB does not have to do anything until the next round of risk aversion.
It’s been quiet for the Pound lately as they have been out of the economic spotlight but have been in the news because of social unrest. This week is heavy for UK data, which kicked off last night showing home prices fell some 2%. Tomorrow brings CPI data, followed on Wednesday by the unemployment rate and the release of the BOE rate policy meeting minutes. Recent talk has been that the BOE may need further quantitative easing to help foster economic growth as the government austerity reduces spending.
Another release of rate policy meeting minutes is coming from the RBA in Australia tomorrow, and there is some talk that perhaps the next move being considered is a rate reduction and not a rate hike. As commodity prices have been falling, inflation may follow which could give the RBA reason for pause or to reduce.
Rounding out the week is US CPI data on Thursday, which is not expected to show the recent sell-off in commodities so it could be artificially high at this point. This reading however will be largely irrelevant as there isn’t anything possible out there that would cause Bernanke to re-think his statement about leaving rates at current levels until mid-2013.
It appears as though last week’s market action has established a bit of a range, albeit a very large one. It is likely that will we continue to trade in this large range for some time until the markets can figure out what to make of the global economic climate.
Once again this will buy time for politicians to fix what ails us economically, and hopefully this time they will use this opportunity wisely. It is unfortunate the state of governments is reactionary and not pro-active policy-making hell-bent on creating jobs.
Yet that’s where we are.
Solutions to the Euro debt crisis and the US jobs problem will go a long way toward returning the global economy toward health, but if the can gets kicked down the road any further, it will be that much longer until we see recovery.
When markets are seemingly range-bound, the best course of action is to buy ahead of support and sell ahead of resistance until those levels break down or new trends emerge. With the terrific volatility from last week, there is ample room to make profits!