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Giving Markets What They Want

Mark McFarland, Chief Investment Strategist, Private Banking, Emirates NBD

The rally is real, but political risks remain in Germany says EmiratesNBD’s Chief Investment Strategist Mark McFarland.

September 13, 2012 11:58 by

At last, markets are getting what they wanted: bad employment data from the US to force the hand of the US Federal Reserve, a clear statement of intent from the ECB that keeps everyone happy, and signs that the slow moving, but eminently powerful Chinese Communist Party is upping its stimulus game. Markets have moved up. Fixed income has rallied in Club Med with 5yr yields now in the range last seen in March and April, when the ECB’s long-term lending programme (LTRO) was still giving sentiment a boost pretty much everywhere.


Equities and commodities have also gained across the board. Eastern European equities have rallied as the threat of cross-border capital flows disruption has diminished.  Chinese and Russian equities have also gained; the latter as a high-beta play on global reflation. Korea has been upgraded. Commodities have been the biggest gainers in absolute return terms with soft commodities, industrial and precious metals up by anywhere between 5-20%. Silver has gained almost 20% month-to-date. EUR has also moved up to hug 1.2800, partly as policy moves have tended to signal a lower USD, and partly as short positions have been liquidated.  EUR is now at its highest since mid-May.


What has been especially invigorating for risk-taking portions of the market?  It’s the combination of policy moves discussed here last week. US data is fine overall (note the decent non-manufacturing PMI number last week), but European and Asian (especially Chinese) has been poor and deteriorating. One central bank or fiscal authority moving in isolation isn’t going to achieve much. A combination or full house is what markets want.  That is what they’ve got.

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