Ugh --- Jolt down
Jolt up? jolt down? has been the market outlook here for a few weeks as the malaise lingered. Today the answer arrived in the form of an across the board sell off of equity markets. Less liquid stocks were clobbered. Big liquid stocks dropped sharply. Europe down, Russia collapsed, and now we await Asia and the reverberation there.
In most market commentary the leading cause of this sell-off was a revised forecast from the World Bank projecting that global economic output is now expected to contract at 2.9% for the year as compared to their March forecast of down 1.7%. This is interesting, a demonstration of the hair-trigger mentality of that first line of market response, the traders. Robert Zoellick, President of the World Bank, initially made these comments in a World Bank press release and on their website on June 11 saying "according to the latest Bank estimates, the global economy will decline this year by close to 3%, a significant revision from a previous estimate of 1.7%". Today in a detailed report on their website, the World Bank refined that decline to 2.9% as part of major report of recommended prescriptions for mitigating the impact of this on poor countries and a list of their own active initiatives.
While the World Bank is intensely focused on how to avoid calamity in the developing world as the world economic crisis pushes more people into poverty and hunger with less access to health care, the traders in the developing markets focused on the World Bank's projected growth numbers that had been disclosed and were available, but obviously not widely published, for the previous seven market trading days.
What this all suggests is that this information was in the market hands of knowledgeable people with more than a one day perspective, but had not reached the hands and heads of the broad trader market that reacts with viral ferocity to news that can be tradeable, or can make them money. Bloomberg and other sources led with this World Bank "news' this morning and the frenzy was on.
This commentary does not mean this is a short lived bit of market weakness. Now confidence has been shaken and it's wait and see time. This commentary does suggest that there has been no major economic change in the last day or weeks. The World Bank's outlook reflects the ebb and flow of working through serious financial and structural problems that led to extreme crisis and having for now survived, those problems are mostly recognized but certainly not all cured. In Zoellick's June 11 press release he said "some of the main risks still remaining include the need to clean up the balance sheets and recapitalize banks, address the unique financial risks in Central and Eastern Europe, guard against a rise in protectionism, and roll over large amounts of private sector debt in developing countries".
Still a lot to do but that big picture is well known.
In most market commentary the leading cause of this sell-off was a revised forecast from the World Bank projecting that global economic output is now expected to contract at 2.9% for the year as compared to their March forecast of down 1.7%. This is interesting, a demonstration of the hair-trigger mentality of that first line of market response, the traders. Robert Zoellick, President of the World Bank, initially made these comments in a World Bank press release and on their website on June 11 saying "according to the latest Bank estimates, the global economy will decline this year by close to 3%, a significant revision from a previous estimate of 1.7%". Today in a detailed report on their website, the World Bank refined that decline to 2.9% as part of major report of recommended prescriptions for mitigating the impact of this on poor countries and a list of their own active initiatives.
While the World Bank is intensely focused on how to avoid calamity in the developing world as the world economic crisis pushes more people into poverty and hunger with less access to health care, the traders in the developing markets focused on the World Bank's projected growth numbers that had been disclosed and were available, but obviously not widely published, for the previous seven market trading days.
What this all suggests is that this information was in the market hands of knowledgeable people with more than a one day perspective, but had not reached the hands and heads of the broad trader market that reacts with viral ferocity to news that can be tradeable, or can make them money. Bloomberg and other sources led with this World Bank "news' this morning and the frenzy was on.
This commentary does not mean this is a short lived bit of market weakness. Now confidence has been shaken and it's wait and see time. This commentary does suggest that there has been no major economic change in the last day or weeks. The World Bank's outlook reflects the ebb and flow of working through serious financial and structural problems that led to extreme crisis and having for now survived, those problems are mostly recognized but certainly not all cured. In Zoellick's June 11 press release he said "some of the main risks still remaining include the need to clean up the balance sheets and recapitalize banks, address the unique financial risks in Central and Eastern Europe, guard against a rise in protectionism, and roll over large amounts of private sector debt in developing countries".
Still a lot to do but that big picture is well known.
posted by John Borden at 5:29 PM
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