The Year 2011 was indeed a difficult year for the financial markets. We had the earthquake, tsunami, US credit rating and Europe issues, etc.
To cushion the fall in 2011 Q3, major economies intervened. The effects started to materialise in late 2011 Q4 as it takes time. Most of 2012 Q1 rally was spanned by the massive pumping of liquidity from major economies not forgetting from Japan and TWO (2) LTROs from Europe!
Amidst the rally in 2012 Q1, most of you who followed my posts would have realised the rally could not last as explained in buy HIGH sell LOW! Following which, Economic data starts to weaken
· Weak PMI spanning from China to Europe
· IP grows at a slower pace
· Trend in exports and imports start to weaken in major economies
· Negative GDP is noticed in most economies
· Technical recession is found in most countries in Europe, etc
The ‘Risk ON’ tap was shut. Risk OFF was then laid on the table. As you probably know, this was triggered after the US data released in May 2012 coupled with several elections in Europe. Henceforth, most data released from Japan, China and Europe not forgetting the US starts to deteriorate. This coincided with 'Sell in May and Go away'.
Where did all the money go? Valuations in equities, gold, commodities, crude oil, etc. fell. Most of this was channelled to safe haven instruments like the Japanese Yen, US dollar, Treasuries and equivalents. With the rise in the US dollar, commodity currencies, crude oil, etc fell. This is a ripple effect. Unless Risk OFF is taken off the tap, the US dollar will continue to be of choice. Have you noticed the strength of the US dollar index?
Hence, we will have to wait until the laws of economics is triggered – Demand and Supply. Until then, be very (very) prudent on where, when, how much you might want to risk. Gold will be of choice BUT not at this time.
With no catalyst in sight or for that matter, QE3, LTRO, China stimulus can you find a reason to take risk? Bargain hunting is for the novice. If you do, please share with the audience.
While most of your investment tools may differ from mine, I strongly advise that you do not ignore my speculations. The current environment may not be visible to you but is very visible to me. The situation is totally different from what you understand. Be very careful if shampoo salesman tells you to buy because it is cheap. If you do without understand what you're going into, it is like burning your assets.
With total uncertainty in Europe, major trading partners will suffer the same fate (in trade). Even China will not be spared (in the near term) as China needs time to react to the situation. Hence, the global economy will slow down at a rapid pace.
From now Singapore time until Friday, 930pm I would expect the markets to be in a tight trading range despite the fact that PMI data from China, UK and Europe came out weaker than expected. The major focus for the week would be US data on ISM Index, nonfarm payrolls and Unemployment. The EZ joblessness data which just hit headlines rose to the highest level ever. I wouldn't be surprise if the US nonfarm payroll data completes the puzzle of weak unemployment. Otherwise, i'll be very surprised but am very sure any rally will be short lived.
Unless major economies work in tandem, coordinated (not individual) economies launch growth directions, any rally in the near future will be short lived. Greece is the focus and the giunea pig, put your focus in SPAIN - "Spexit". Falling currencies leading to higher inflation coupled with growth concerns is a crucial problem to most economies!
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