The broad markets have turned nervous. Why? Excuses are plenty but the reasons are complex. We have seen global equity markets that have been on an extensive bull run and with quarterly earnings now coming from the States investors may realize that corporate outlooks will not match government optimism. Also it should be considered that the recent month-long ‘blooding’ seen via some of the favourite tech stocks that have been battered has set off alarm bells. Alcoa will kick off the official start to earnings today.
Factoring into the mix also is the fact that Chinese, Japanese, and European economic data has remained rather troublesome. And the U.S. offered up a jobless report on Friday which did miss its estimate (though not by much) and continues to raise suspicious questions from analysts who do not believe the ‘group talk from the Fed’ about improving employment conditions.
Manufacturing Production data will come from the U.K. today and later on a couple of key FOMC members will be speaking at different events. But the crux of the matter is sentiment that has seemingly become more negative in the past week, this after a good month of trading on Wall Street. However, the signs have been there since the start of the year that the equity markets have been nervous as speculation and volatility have been a constant. The question is how much blood will be spilled if the markets remain nervous and the tension builds?
Last week’s ECB monetary policy did not create a new critical mass, FX has remained rather range bound and appears ready to test support and resistance levels for the EUR, GBP, and other major currencies like the JPY. The USD is a definite barometer via what ( or what not) the Fed finds itself saying and doing – which is often not exactly clear cut. Digital Markets Advisor has been critical of the Fed and other Central Banks as they have essentially proven to be keen fence sitters seemingly more interested in protecting their own public stature instead of instituting needed reforms.
The price of Gold as of this writing is near 1307.00 USD. The precious metal has gained the past couple of trading sessions, much like the EUR against the USD. While that is standard the past year has shown traders that the two (Gold & the EUR) are not always working in sync and can be counted on for providing divergent runs periodically. While the Single Currency has been strong and is testing resistance levels, Gold has been in the midst of a long bear market and the question is who controls the commodity now?
If equities should continue to express nervousness (in other words lose value in a sell off should it become sustained) Gold could become a very interesting play, but traders should also note that volatility will be part of the landscape. This promises to be an interesting earnings period. As always investors will have to weigh their insights against those who are keen on selling a dream. Institutional finance houses will be a key player in the markets the next few weeks and traders should understand that large amounts of money will be in play and create plenty of theatre.