Stocks markets battered. No other way to put it. It would appear the slowdown and recessionary fears in the EU have finally caught up with investors globally resulting in a mass exodus from stocks.
The USD began the week on the defensive having closed strongly on Friday after Fed vice chairman Stanley Fischer made some rather dovish comments over the weekend that underlined the data dependency of the Fed’s policy. Stanley commented that weaker conditions abroad could feed back into Fed policy: “If foreign growth is weaker than anticipated, the consequences for the US economy could lead the Fed to remove accommodation more slowly than otherwise.” US Treasury Secretary Lew warned G7 and G20 nations to “adhere steadfastly to their exchange rate commitments. G7 countries should stand by their commitment to orient fiscal and monetary policies toward domestic objectives using domestic instruments and not target exchange rates…” In other words: we don’t want currency wars, which obviously is becoming a greater risk to global economic conditions which has seen a downturn for the worse. Regional Fed presidents George of the KC Fed and Fisher of the Dallas Fed both agreed that the risks of keeping Fed rates too low for too long could be counterproductive. I have said in this blog that the FED would in all likelihood raise rates EARLIER than anticipated given the growth of the US economy. Having said that the weakness in the EU could hamper this or delay it a couple months until the EU shows better growth prospects. To add salt to the wound, S&P lowered the outlook on France’s sovereign debt and lowered the actual rating on Finland’s debt to AA+ from AAA.
Today is a banking holidays in the US in which banks and the bond markets are closed, but equity markets are open – interesting because of the DISASTROUS close on Friday, with the S&P 500, our most important global risk benchmark reversing gains and trading under 1900. The stock markets are in free fall posting yearly lows and adding pressure to investors to act. While I see this theme continuing for now, any positive numbers out of the EU will see the markets start to rebound and shrewd investors looking to pick up “cheap stocks”.