Equity markets held onto Friday's gains, an encouraging sign for the week ahead. According to Nomura funds flowed out of equities last week, another encouraging sign for equity markets. I also pointed out last week the FTSE 100 was trading close to its 200 day moving average of 6500, and that traders would look to that as a support level for the index, it appears to have provided that support. Traders will now look to the FTSE to break back through the 50 day average of 6620. Other encouraging signs for equities came from China overnight as data released showed Chinese exports rose 12.7% last month from the same month a year ago. The National Association of Business Economics, the largest international association of applied economists, strategists, academics, and policy-makers, in their quarterly survey admit to feeling more upbeat about the outlook for the global economy and employment.
In a research report produced by Citi they reiterate their preference for equities, pointing out that periods of economic growth and limited inflation is generally a good one for equities. They therefore remain overweight relative to other asset classes. They remain underweight commodities and government bonds. They believe valuation for equities remains attractive. They also believe the tail risks in EMU sovereigns, banks, China and on US fiscal are receding. On when the Fed might start tapering, Citi economists believe there is a risk that the Fed taper in December but in their opinion its more likely to be March.
There is no doubt the bears are capitulating, the higher the market goes the harder it always becomes to find the bears. In today's Fund Manager section of the FT Hugh Hendry described as an outspoken hedge fund manager and self styled "last bear standing" is now throwing in the towel. He believes equities are now in the middle of a powerful rally that can take markets to unprecedented highs. According to the FT Mr Hendry's CF Electica Absolute Macro fund lost 2.5% in the first 10 months of this year and is up 9.3% since inception in 2010. It must be a difficult call to your investors to explain that having watched the markets rise over 50pct in the last 4 years and not investing you feel the timing is now right with developed markets at or relatively close to all time highs, to step in.