Global Indices Pull Back on Chinese Credit Crunch and Fed Tapering

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Stock Market Trading

: 28 June 2013

In Europe this morning, indices are set to open flat as traders wait for new cues.

Following the rally of the last few days, investors are taking a small pause before a busy day of economic data and a host of Fed member speeches.

European markets seem to have been completely absent from global macro themes of late, satisfied to tow the line of whatever is going on in the US and Asia.

The first day of the EU summit has largely gone unnoticed as they painfully agreed on issues of how to share the cost of another bank failure and set some ground work for a single European banking Union.

Thankfully, today sees the bureaucrats move on to the more pressing matter of growth and youth unemployment.

Unfortunately, the 'youth unemployment initiative', which promises to give all under-25's a job, training or an apprenticeship, has all the hallmarks of an unaffordable welfare scheme and does not have the private sector support that markets would like.

In the afternoon, we have the Chicago PMI and University of Michigan Confidence data being released.

Given that we saw gains on Tuesday after some positive data, but also saw gains on Wednesday after some weak data, caution is setting in over how to trade the figures.

Also, to add more unpredictability to today's session, we have four Fed members speaking that straddle the monetary spectrum.

The US economy continues to grow at a rather slow pace, if yesterday's data is any indication, which fuels speculation that the Fed is unlikely to change course on its stimulus policy for now.

This offered investors a reason to jump back into equities, pushing the Dow Jones 104 points higher to 15,010.5, as many considered last week's steep drop to be a bit of an overreaction.



Stock Market Trading

: 27 June 2013

European markets look set to start on a firm footing again as the recent turn around remains intact.

The sell off seems to have found a bottom and some bruised bulls are dusting themselves off and going on the hunt for some heavily discounted bargains.

Yesterday's sub par US GDP figure has buoyed traders because the Fed's tapering time scale is dependant on some overly optimistic economic projections coming to fruition.

With those projections looking increasingly like a long shot, hopes are that the Fed's bond purchase program has longer to run.

Considering that the market might be getting ahead of itself with the declines, investors pushed the Dow Jones 153 points up to 14,911.



Stock Market Trading

: 26 June 2013

Stock market indices are set to open flat as a semblance of calm creeps into the markets.

The vicious moves lower, on fears of Fed tapering and a Chinese credit crunch, seem to have abated for now and tentative buyers are feeling a little more confident about dipping their toes back in.

A surprisingly positive reaction to some good US economic data gave the Dow Jones a chance to recover 88 points to 14,757.5.

The figures for durable goods orders, new homes sales and consumer confidence all beat expectations and indicated that the outlook remains positive.

Nonetheless, investors will soon have to decide whether the economy is growing at a fast enough pace to convince the Fed that it's time to scale back their stimulus.

Overnight in China, the PBOC soothed Asian markets by stating that it had pumped cash into some financial institutions.

Closer to home, today sees George Osborne provide details of where the expected £11.5bn of cuts will fall.

The efforts to make a dent in the deficit are likely to keep the bond vigilantes at bay for a while longer.

However, the question of where growth will come from still leaves a lot of question marks.

A fanciful growth fund dependant on current revenue forecasts coming in on expectations is unlikely to spur much optimism.



Stock Market Trading

: 25 June 2013

European equities are set to open lower following a weak close in the US and another blood bath in Asia.

The recent never ending rally almost seems like a dream; European indices have given back all those gains and are now looking to head into negative territory.

The double whammy of Fed tapering and a Chinese credit crunch refuses to let up and whilst we are expecting a relatively calm start, it may not last long.

Even though equities have been heavily discounted over the last few days, bargain hunters are nowhere to be seen.

Fears that this sell off has more ground to cover has traders concerned about catching a falling piano rather than snapping up undervalued bargains.

News that credit crunch fears have seen Chinese equities enter bear market territory rattled the global markets yesterday.

US stocks were not immune to the fresh concerns of slowing Chinese growth and headed south in line with the rest.

Consequently, the Dow Jones lost 102 points to 14,664, with the index now seeing a negative short-term outlook.



Stock Market Trading

: 24 June 2013

European stock markets are set to open flat to marginally higher as traders continue to struggle with Fed policy.

Since last week's FOMC meeting, equities have seen a knee-jerk down move on fears that stimulus is about to end.

Despite Bernanke saying that this was exactly the wrong thing to take away from the meeting, the financial markets have succumbed to bearishness.

It feels like additional signals from the central bank will definitely be appreciated and investors were clearly reluctant to go into the weekend with a long stance.

However, US markets did manage to wrack up some modest gains on Friday, with the Dow Jones posting an 8 point rise to 14,783.5, as traders finally regained some composure.

It now seems that European markets may have also managed to steady themselves as we start the week.



Stock Market Trading

: 21 June 2013

European equities are set to open flat as they gain some post FOMC composure.

Following the FOMC press conference, all asset classes got pummelled and everyone fell back in love with the dollar.

Now that all regions have had an opportunity to price in Bernanke's words, the verdict was decidedly bearish.

Given the speed and volatility of the moves lower though, most traders probably only took a cursory look at the headlines before hitting the sell button.

However, the big caveat that could be the savour of the bulls is that tapering is still data dependant.

Whilst markets seem to have concluded that the end of Fed bond purchases are inevitable, Bernanke himself said at the press conference "...if you draw the conclusion that I've just said that our policies, that our purchases will end in the middle of next year, you've drawn the wrong conclusion because our purchases are tied to what happens in the economy."

On that note the Fed is notorious for being overly optimistic with its economic forecasts and he alluded to that fallibility when he said "...if the Federal Reserve makes the same error and we overestimate what's happening, then our policies will adjust to that".

So despite a particularly rosy view of the future, the US economy still has to drag itself out of its malaise which is still quite a tall order.

After a combination of the FOMC meeting and worse-than-expected manufacturing numbers from China, we had a violent nosedive yesterday as the Dow Jones lost 329 points to end at 14,769.

There are plenty of voices wondering if this was the sentiment changer.



Stock Market Trading

: 20 June 2013

European equities are set to open sharply lower despite Ben Bernanke treading a diplomatic line.

Although there were few surprises and little change in the statement, the financial markets seem to have construed the whole event as rather hawkish.

Once again, it was made clear that tapering would be data dependant. And while the current state of the US economy shouldn't spur any immediate worries of a reduction in asset purchases, the somewhat questionable positive forecast revisions by the Fed made seemed to be taken as gospel. So the markets subsequently sold off.

Looking to the future, the inverse logic of 'good news is bad' is set to be the main driver for markets. Any sign of an uptick in the economic data is likely to be met with extreme bearishness.

The Dow Jones dropped sharply yesterday following comments by the Federal Reserve Chairman who said a reduction in the asset purchasing program may be on the cards later this year should conditions improve.

That triggered a plunge of 221 points to 15,098 which seems to continue at the time of writing, especially after Chinese manufacturing data came in at its lowest level for 9 months.



Stock Market Trading

: 19 June 2013

With a key FOMC meeting coming up later today, European stocks are set to open fairly flat as traders brace themselves for Ben Bernanke's press conference.

Awaiting the outcome, US investors remained on the optimistic side last night and continued to push the Dow Jones higher, with the index gaining 134 points to 15,326.

Debate over the longevity of the Fed's bond purchase programme has fuelled much of the recent volatility in financial spread betting markets and traders will be hoping for some form of clarity about its future.

When Bernanke said that the Fed 'could in the next few meetings take a step down in our pace of purchases', the potential definitions of his word 'next' has had markets reeling in uncertainty.

However, a clear start date for the commencement of tapering is probably the least likely outcome from today's meeting, meaning that markets will once again have to read between the lines.

Given the mixed bag of recent data, Bernanke may well state that little has changed since last month and the economic recovery remains moderate.

In this instance, we can expect the Fed to 'maintain appropriate policy accommodation' and continue its quantitative easing for now, which would offer the most uncertainty for markets.

Unfortunately, with markets so sensitive to the Fed at the moment and the mist unlikely to be cleared, we see the recent volatility continuing after the meeting as traders remain in the dark.



Stock Market Trading

: 18 June 2013

This morning, European equities are set to ease modestly on the open as traders remain cautious ahead of Wednesday's FOMC meeting.

A surprisingly positive start to yesterday's European session succumbed to some nerves by the afternoon and so markets eased off their highs.

In the US, stocks also saw an unwarranted move higher initially but were put back in their place after an article from the FT suggested that the Fed was close to tapering.

Despite this, another positive home builder confidence report helped the Dow Jones remain cautiously optimistic and close 145 points higher at 15,200.

Overall though, with such a large risk event looming and most of the market in wait-and-see mode, it's difficult to see why anyone would want to add any significant new positions.

Any movement in the run up to the FOMC is likely to be attributed to traders trimming their risk.



Stock Market Trading

: 17 June 2013

A tepid start is expected in Europe as traders bide their time until the conclusion of this week's main event, the FOMC meeting and subsequent policy statement.

With the G8 focussed on Syria and domestic economic data taking a back seat, only the latest minutes from the RBA and BoE may punctuate what is expected to be a mundane yet anxious few days.

In a sign of the global significance of the Fed, whilst US indices have shed some 3%, their European counterparts are down by 5-7%.

Similarly, despite once complaining that hot money was pouring into their stock markets, Asian and emerging markets have plummeted since tapering became the byword of the bears.

Whilst equity markets did manage to steady themselves at the end of last week, it's not clear what the bulls are holding out for.

Although there is no possibility of Bernanke back-tracking on the whole tapering issue, he may offer some consolation by saying that near-zero interest rates will remain well after quantitative easing has ended.

Unfortunately for the bulls, nothing has the same levitating effect as those freshly printed dollar bills straight from the press.

The Dow plunged 131 points to 15,057 on Friday after the International Monetary Fund downgraded next year's US growth outlook from 3%, as predicted in April, to 2.7%.

Following that, the IMF also added that the Fed should stay alert regarding the timing and scaling back of their monetary policy, an operation requiring plenty of care.


By Jonathan Sudaria, 28 June 2013


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