ETX Capital Daily Market Bite, 12th July, 2013; Markets Still Ride Dovish Cental Bank Wave
July 12, 2013 9:20 am
July 12th, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Stocks edge up in Europe, posting mild gains but upside momentum curbed by China’s finmin slapping the market by implying that growth in the world’s second largest economy will come in around 7% rather than 7.5% forecasted back in March by the Chinese. These comments come ahead of next Monday’s official GDP figure from China so could be a clever ploy to temper markets expectations. Interestingly, China is comfortable with the slower pace of growth as government looks to focus on banking sector reforms but the slowdown comes at the cost of the rest of Asia who depend on China for trade and demand, i.e. Australia for commodities. Chinese growth fears in that case are weighing on European resources and commodity prices; gold off around 5 bucks at the moment.
That being said, the risk tone remains broadly supported by continued central bank activism after Fed head Bernanke suggested the central bank is in no hurry to tinker the pace of asset purchases, allaying concerns in the market that we may be in for the tapering as early as September. Additionally, the ECB and BOE also embarking on forward guidance last week, remaining highly accommodative with measures, adds to the global cheer over the amount of liquidity still in the market place for now.
Interestingly, the market reaction to Bernanke’s unexpected comments regarding monetary policies on Wednesday was rather telling — the DJIA and S&P500 on Thursday surged to fresh record highs on the back of his comments and we saw a stellar European session. Just as investors were getting to grips with the notion that the Fed will taper QE soon and we will be operating in a world with reduced liquidity, the market reaction clearly suggests that investors still have a crippling addiction to liquidity. At the same time, we shouldn’t jump too high on Bernanke’s dovish remarks as the Fed have clearly stated that tapering is dependent on economic data, particularly the performance of the labour market and inflation. If, we do indeed continue seeing strong signals out of the US economy over the next month, investors cannot rule out that Bernanke will change his tune again and throw out some more taper-talk which will rile up the markets again.
July 12th, 2013, Daily Market Bite from Ishaq Siddiqi Market Strategist
Stocks edge up in Europe, posting mild gains but upside momentum curbed by China’s finmin slapping the market by implying that growth in the world’s second largest economy will come in around 7% rather than 7.5% forecasted back in March by the Chinese. These comments come ahead of next Monday’s official GDP figure from China so could be a clever ploy to temper markets expectations. Interestingly, China is comfortable with the slower pace of growth as government looks to focus on banking sector reforms but the slowdown comes at the cost of the rest of Asia who depend on China for trade and demand, i.e. Australia for commodities. Chinese growth fears in that case are weighing on European resources and commodity prices; gold off around 5 bucks at the moment.
That being said, the risk tone remains broadly supported by continued central bank activism after Fed head Bernanke suggested the central bank is in no hurry to tinker the pace of asset purchases, allaying concerns in the market that we may be in for the tapering as early as September. Additionally, the ECB and BOE also embarking on forward guidance last week, remaining highly accommodative with measures, adds to the global cheer over the amount of liquidity still in the market place for now.
Interestingly, the market reaction to Bernanke’s unexpected comments regarding monetary policies on Wednesday was rather telling — the DJIA and S&P500 on Thursday surged to fresh record highs on the back of his comments and we saw a stellar European session. Just as investors were getting to grips with the notion that the Fed will taper QE soon and we will be operating in a world with reduced liquidity, the market reaction clearly suggests that investors still have a crippling addiction to liquidity. At the same time, we shouldn’t jump too high on Bernanke’s dovish remarks as the Fed have clearly stated that tapering is dependent on economic data, particularly the performance of the labour market and inflation. If, we do indeed continue seeing strong signals out of the US economy over the next month, investors cannot rule out that Bernanke will change his tune again and throw out some more taper-talk which will rile up the markets again.
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