Good Day to everyone! It was a hot weekend here in Shanghai and with August coming to an end, everyone’s returning from summer travels which typically means that things seem to be getting back into full gear. Our softball team came away with back to back wins over the weekend and the team is currently sitting at 4-0 which is not a bad way to start the fall season! So let’s get straight to it….
Last week saw little movement in the markets, but it was just enough to keep most indexes in the green. The Dow ended the week at just under a 1% gain, the S&P cleared the 1% marker, and the FTSE100 barely moved above where it started on Monday. Even though the gains were small, they still added to the recent upward trend which is nice to have and we won’t complain about. It’s similar to these sunny, blue sky days we’ve been having in Shanghai this summer, at first it was just a few but thinking back about how many we’ve had, they’ve certainly added up.. And if only we had a pool at the office!
There was a story in Reuters last week that showed the CBOE VIX level hitting a 5 year low. For all our readers who know about VIX feel free to skip to the ** as I want to take a second to explain this to our newer readers. The VIX index is a popular measure of short-term investor confidence. It tries to gauge investor confidence over a 30 day period and although it only focuses on the S&P 500 index, it is widely used to get a feeling of investor confidence around the globe. Basically how it works is, the lower the VIX number is, the less concerned investors are believed to be, whilst a high VIX number indicates that investors are not confident and worried about upcoming events in the next 30 days.** Although this is comforting to hear, nobody likes to get caught with their hand in the cookie jar before dinner and certainly no one wants to jump on the wrong investment band wagon either!! So let’s take a look at what’s going on around the globe starting with the USA.The USA
The US continues to delay everything they can, like a teenager would their homework in the hope something like a typhoon would hit to cancel class! And that typhoon happens to be the US FEDand their stimulus package that is eagerly expected around the end of this year.
It’s very plausible stimulus will be implemented, however with all the expectations over the past few months, it would have to be a pretty large stimulus package to have the impact all the hype has created! Let’s not forget though too that the US is still dealing with unemployment, weak manufacturing numbers, and with most attention on the upcoming election in November it will likely be a last minute fix with the debt ceiling, just as we saw last year.
EuroMoving across the pond to Europe, Greece hasn’t been in the headlines for a while, Spain seems to be keeping things together for the time being, and the recent statement by German Chancellor Angela Merkel was warmly welcomed by investors. It seems Germany is leaning more and more towards fully backing Euro bonds and they have been the anchor for Europe during all the recent episodes and have done everything they can to keep the Euro Zone together with bailout after bailout! Sure, Germany does get a benefit from a weaker Euro being such a large export nation, however they have always been reluctant to directly tie their debt in with the rest of Europe and would prefer to simply loan out the funds rather than “share the same shirt” so to speak. This will be something to watch because if Germany agrees to combine bonds with their neighbors, it wouldn’t fix the underlying problems in Greece, Spain, Portugal, Italy but it would certainly make it cheaper for the struggling European countries to finance their immediate debt. However just like the recently finished Olympic events, they will return and it may just be a matter of time before Greece and company return to the headlines. Watch this space.
Two of the larger emerging markets, Brazil and China have both been spreading rumors about intervening to help with their slowing economies and it’shard to ignore that this could be more of a repositioning tactic rather than a boosting tactic we see with US or Europe intervention. Brazil and China still have enormously better GDP growth than that of developed nations, however without the buying partners of Europe and the US in a position to spend their pocket money on extra goods it’s hard to imagine that countries like China can continue with their same levels of GDP compared to a few years ago. As a result, the most suitable plan of attack is to prevent overheating too much, and at the same time use this to strengthen their own internal economics as they know they can’t rely on their exports to fully maximize their earnings. So far the emerging nations have done well to compensate and we’ll have to see how they progress Strategywith any new policies they implement.
Without too much data to be reported this week most eyes will continue to watch the European progress as well as housing and employment numbers in the US. As mentioned before it will likely be later towards the end of this year before the US comes out with any stimulus package and until then we expect this sideways movement to continue. For our investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Have a wonderful week ahead everyone!
Wealth Management & Investment Team
Austen Morris Associates
www.austenmorris.com
