Have expectations already sunk so low that even the coming week’s dour results could still beat expectations and spark a rally? That’s the big question for the coming week.
The main theme continues to be risk aversion in all markets, most obviously in global stocks and bonds.
Equities are continuing to show technical breakdown. US and European government bonds are showing no signs of breaking the strong long-term bull trend despite decade low rates. Most growth dependent commodities show a similar story, though copper gets a bit of a boost from slowdowns in Chilean mines.
The underlying cause is uncertainty about the continuity of the global economic recovery as most of its engines slow down. Europe faces a slowdown from the combined effects of austerity and future aid to nations struggling under debt burdens, and to their large bank creditors. Japan remains stuck in deflation. China is intentionally cooling its growth to avoid inflation. Every major indicator of US economic health points to a substantial slowdown in the second half of the year.
The only clear beneficiaries are safe-haven and currency-hedge assets: AAA bonds, gold, the JPY, CHF and to a lesser extent, the USD. (more)
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