Dean Popplewell | Jun 13, 2013 07:23AM ET
There is nowhere to run and nowhere to hide from the unwinding of quantitative easing, or so it seems? Vast amounts of monies continue to scour the various asset classes looking to book a good yield – for many players it’s their only sanctuary. What investors are witnessing is a recalibration of asset prices of sorts, as central banks consider their exit strategies of QE or lack of them. This pricing mechanism is our “new” runaway train that is sure to cause more collateral damage.
With almost everybody of note revising, it would be remiss if the World Bank did not do it! They have now officially cut its global growth forecast for this year after emerging markets from China to Brazil have slowed more than projected. Their analysts cited that budget cuts and slumping investor confidence seems to be deepening in Europe’s contraction. So far it seems that governmental agency have been blowing smoke somewhere to at least benefit the investor, albeit by paper wealth or on general confidence terms. However, things are slowing starting to unravel. According to the bank, the world economy will expand +2.2%, less than January’s forecast for +2.4% growth and slower than last year’s +2.3% – many would still argue that this headline print is still a tad too high!
In the overnight session the once mighty USDJPY has broken another psychological barrier- trading below ¥95 and keeping the correlation trend intact. The Nikkei continues it’s mini crash – dropping -6% during the Asian hours. It will soon be a perquisite for Prime Minister Abe to talk his ‘own’ book? Even the Chinese markets, which opened for the first time this week, traded down -3% from last weeks level on weak macro data released over the weekend. It’s currently difficult to find any regional positive traction. Global growth is slowing with no inflationary pressure in sight.
The Japanese stock market is down more than -16% from its highs – we can almost classify it as a mini-crash with other emerging markets stocks are also down sharply. Wealth is disappearing quickly from investors, the “western world gravy train cannot continue.” The dollar has declined against the EUR rather than appreciate, as the reality of a slowdown versus a spectacular rally witnessed in equity markets over the last 18-months, comes to a halt during asset recalibrating.
This morning’s US retail sales headline may cause a small stir. Some analysts are expecting both headline (+0.4%) and ex-auto sales (+0.5%) may put in its best showing in three-months. While the core ex-auto and gas sales (+0.5%) could rise at its fastest pace in five-months. Along with US weekly jobless claims coming in unchanged (+346k), the negative dollar may manage a small reprieve giving investors an opportunity to improve their portfolio average. The new market theme has investors becoming hyper sensitive to data prints that could tilt their expectations with regards to asset purchase tapering – a good reason for no “summer of love”!
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