Marking time

Weaker than expected China export data, did not prevent Asian stocks finishing modestly higher on Thursday. Despite Premier Li's comments that at present the government will not be taking any short-term stimulus measures to deal with the economy's short-term volatility, speculation continues that at some stage the Chinese will be forced into moves that will boost growth in the region. Equity investors continue to see bad economic news in the area as good news stock markets.

Wednesday saw the release of the minutes from the last Federal Reserve meeting and again the Fed appears at pains to stress that speculators should not get too far ahead of themselves when anticipating the first rate rise. To no surprise the Bank of England left interest rates unchanged at their monthly rate decision meeting. 

Equity markets continue to trade with no real sense of direction. Not that many will shed a tear but it must be tough times for investment managers and investment Banks. The lack of volatility in assets classes is very noticeable. The FTSE 100 currently stands in the middle of a trading range it has been in for the past year. The S&P 500 at 1850 is within one or two percent of where it has been since last November, with the exception of the dip at the start of February. Likewise the US dollar basket (DXY) has traded in a very tight range for nearly 6 months. The Eurodollar rate is almost exactly where it started the year. Commodity prices have risen modestly, the Reuters commodity basket up just over 5% so far this year, in line with what the gold price has done. 10-year US treasury yields at 2.63% are again at the same level they were 6 months ago. 

Maybe we’ll have a year of marking time which may not be a bad thing; it will give markets time to consolidate the rise of the past few years. This lack of volatility in asset prices will give corporates a stable background to work in. If corporates can deliver a solid year of profit growth, valuations will start to look more attractive and the world can possibly be in a better place to prepare for when global interest rates do start to move higher. We will soon be approaching “sell in May and go away, come back on St leger’s day” for equity markets. It will be a tough call for investors in the short-term as they balance the inconsistent economic data with the possibility of increased monetary stimulation from likes of Japan, China and Europe.

Posted on April 11, 2014 .