Let’s just say for a moment maybe the optimists are correct and that the good days will be prolonged and the equity markets will continue to gain and that governments and their central banks have all of their monetary policies in order. Let’s allow for this moment of happiness to pervade. Let’s not think about bad days. Quiet reflection of all that is tranquil in our lives. On being transcendent with the spiritual guru of free enterprise, and the ambition of one hand on dollars and one hand full of gold coins keeping us calm. Flexibility is a sign of good health for both mind and body.
Now that we have that out-of-the-way, allow us to say it is not our editorial policy to talk about the yellow cloud or to convey messages of imminent apocalypse. However, it is our job at Digital Markets Advisor to give an honest opinion on the broad markets. Equities continue to trade near highs even though most global bourses took it on the chin yesterday, and we believe equities may get tested further. Refreshed worries coming from Europe threw a cold glass of water on investors. The upcoming election in Italy and its implications, and new eruptions about Spain’s leadership caused trouble. The EUR did trade lower vs. the USD on Monday and continues to test short-term lows as of early today. Gold is near 1674.00 an ounce.
Seriously, did any of the problems Europe is facing ever really go away or were they merely swept under the rug in an effort to save the Single Currency from cracking in half? The asset bubble that some analysts believe has formed in equities due to cheap money pervading financial institutions with few other choices to park their cash should continue to remind traders to be careful. Commodity prices have seen some volatility as of late with certain physical resources such as Crude Oil and Cotton being pushed significantly higher the past couple of months.
Factory Orders data was negative from the States yesterday and the Sentix Investor Confidence reading from Europe declined further. PMI data will highlight European statistics today, but talk of an emerging Silvio Berlusconi within Italian politics also has investors on a razor’s edge as they contemplate Sovereign Bond yields. And watching Mariano Rajoy fight off corruption allegations in Spain while it suffers a depression may in a word be – depressing. The ISM Non-Manufacturing PMI figures will come from the U.S. later today. Tomorrow German Factory Orders will highlight the day and perhaps lend itself to restoring some calm among European investors who may suddenly feel as if their ship is lurching into stormy waters.
We have tried to be kind, we have tried to give our readers a momentary glimpse of calm, but there remain signs from a pure business perspective that are troubling. The fact that the EUR remains in strong territory will cause harm for E.U. exports. The Single Currency in fact should become weaker in order for the continent to have a fighting chance of achieving growth and fix the ailing GDP. There is a huge problem confronting the Single Currency however, the Federal Reserve in the U.S. appears to be thinking about little else except the health of the American economy as it prints money in a wild manner and that is not exactly helping create a good balance of value. For now the markets are working, they are functioning, equities remain tempting for many. However, Sovereign Bonds remain a place where little can be gained and the notion of preservation can even be argued against. Some investors are beginning to bet more heavily on ‘junk bonds’ from the corporate front and they cannot be blamed, in fact they might be right.
This week’s trading climax may come on Thursday when the BoE and ECB will make their monetary policy decisions. Until then traders and investors will certainly get their chance to test forex, equities, and commodities for strengths and weaknesses if they remain flexible short-term and pay stark attention to risk management.