Financial markets in turmoil, or are they
It's been easy to stay quiet about the financial markets recently. Everything was happening too fast, with volatility rarely seen so widespread, one way or the other, in equities, bonds, and commodities. Sitting on one's hands instead of trading or writing was from this perspective the right thing to do, although as far as trading goes there was a tad of activity here that there is hope for, the risk/reward looked exceptionally good but the trades may turn out to be ill-timed. Of the few small trades made only one is barking, and of the others two are up and three are down, all modestly.
The removal of the peg on the Swiss franc is the big news. Anything that disruptive and unexpected will take days if not weeks to unravel, find the big losers and any winners if they can be found outside of owners of tangible Swiss assets, and that is even a suspect comment. With volatile markets fully in stride for 2015, the timing of this action by the Swiss Central Bank is not helpful, an understatement certainly.
The U.S. equity market finally had a positive day to close the week. Some may say that the U.S. consumer sentiment numbers from Univ.of Michigan being at an 11 year high was a big positive and spurred the one day rally. There are those who keep saying, rightly so, that the market is trading as if we are heading into a recession, and there is no indication of that at all. But one could also say that when in uncharted territory, the operative word is "uncharted", meaning who knows what's next? Looking back at the LTCM crisis in 1998, dire at the time, it did not happen when the world had any fear of moving into a recession. Still, it was a near credit market freeze-up caused by completely unexpected events that threatened to create defaults across the system.
That kind of situation is not expected here, but Central Banks have gotten themselves into a fix, in different ways, in Europe, Japan, and the U.S. Their quivers are almost empty. As has been preached here over and over again, there is no rationale for U.S. interest rates to be almost zero, but now that they are there how do they get raised. This needs to be addressed even if it causes temporary pain. Stitches are no fun but most would say having the ability to stop the bleeding, if necessary, is important. Anyway enough of this rant.
Does the U.S. equity market run-up today mean there's more to come next week, that the table is finally turning. Absolutely not. We don't know! Today was in all likelihood a short covering rally of some magnitude as we face a three day market weekend. Global financial markets will be open on Monday and more news will be coming out of the woodwork. We can only wait, watch, and be patient for now.
The removal of the peg on the Swiss franc is the big news. Anything that disruptive and unexpected will take days if not weeks to unravel, find the big losers and any winners if they can be found outside of owners of tangible Swiss assets, and that is even a suspect comment. With volatile markets fully in stride for 2015, the timing of this action by the Swiss Central Bank is not helpful, an understatement certainly.
The U.S. equity market finally had a positive day to close the week. Some may say that the U.S. consumer sentiment numbers from Univ.of Michigan being at an 11 year high was a big positive and spurred the one day rally. There are those who keep saying, rightly so, that the market is trading as if we are heading into a recession, and there is no indication of that at all. But one could also say that when in uncharted territory, the operative word is "uncharted", meaning who knows what's next? Looking back at the LTCM crisis in 1998, dire at the time, it did not happen when the world had any fear of moving into a recession. Still, it was a near credit market freeze-up caused by completely unexpected events that threatened to create defaults across the system.
That kind of situation is not expected here, but Central Banks have gotten themselves into a fix, in different ways, in Europe, Japan, and the U.S. Their quivers are almost empty. As has been preached here over and over again, there is no rationale for U.S. interest rates to be almost zero, but now that they are there how do they get raised. This needs to be addressed even if it causes temporary pain. Stitches are no fun but most would say having the ability to stop the bleeding, if necessary, is important. Anyway enough of this rant.
Does the U.S. equity market run-up today mean there's more to come next week, that the table is finally turning. Absolutely not. We don't know! Today was in all likelihood a short covering rally of some magnitude as we face a three day market weekend. Global financial markets will be open on Monday and more news will be coming out of the woodwork. We can only wait, watch, and be patient for now.
posted by John Borden at 5:57 PM
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