Heading for a Fall?
Usually I am more concerned with the macroeconomic environment than markets per se. Of course, these two cannot be entirely seperated but day-to-day drops and hikes in stocks and bond yields are not something I tend to follow. However, today the market news have been to loud for me to neglect them. Ironically, and perhaps as a sign that locus of global economic clout is shifting today's d-o-d carnage in all major stock markets hit on the back of news coming out of China.
China’s stock market, one of the world’s best-performing bourses, plunged nearly 9 percent on Tuesday as profit-taking by local funds snowballed before a parliament session beginning next week.
The market’s biggest drop in a decade did not appear to be triggered by concrete news, traders said. But institutions scrambled to lock in large gains made early this month, and some funds sold to raise money to pay dividends in March.
The tumble, which came a day after the main index jumped to an all-time high, bringing its gains for this year to 14 percent after a 130 percent rise last year, suggested investors had become extremely jittery with many shares so highly valued.
“This kind of terrifying fall means the market has become abnormal,” said analyst Chen Huiqin at Huatai Securities, adding that shares could take a while to stabilise even if negative rumours proved false.
I am not a trader as such but today's jitter in China coupled with Greenspan's recent uttering of the probability of a year-end recession in the US have surely shaken Danish market commentators who have been chiming today about the end of the bull market in 2007. So, are we heading for a fall here? Well, in terms of economic growth in Europe and Japan I remain rather bearish at least relative to the proponents of the sustainable and/or goldilocks recovery. Looking at the US I really think it is difficult to say I really also think that this is a lot about semantics. As such, the US has been slowing since the 3rd quarter of 06 but we are still far from the 'Roubinish' hard landing and recession, will this come then at the end of 2007? Well, Roubini thinks so and so does Greenspan it seems but I am not sure. In terms of emerming markets the yield spread of course rose but I hardly think the shift was massive ...
Emerging-market bond yield spreads surged 8 basis points to 1.8 percentage points at 11:49 a.m. in New York, leaving them up 16 basis points from a record low of 1.64 points on Feb. 22, according to JPMorgan Chase & Co.'s EMBI Plus index. A basis point is 0.01 percentage point.
Finally, Felix Salmon (who actually inspired me to this post) also tries to calm us down ...
So Chinese stocks fell by 9%, Alan Greenspan uttered the word "recession", US stocks are down, credit spreads are widening, and emerging-market bonds are being hit. It's time to take a step back. The Intrade recession contract is at an all-time low, showing a recession probability of just 16%. Spreads are widening, yes, but off of all-time lows themselves. The biggest risk in emerging markets is – well, there isn't one, really. Maybe the Latvian currency peg. US inflation expectations are falling steadily. In other words, there's no reason for a bloodbath. Chances are that prices will go down, and then they'll go back up again. As you were.