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Global market news – what is it telling us?

June 7th, 2009 · Greg Atkinson · 1 Comment

Depending on your point of view the world’s stock markets are either having a temporary rally before they continue their downward slide or we are witnessing the start of a slow global economic recovery. But rather than make any assumptions or speculate on the future let’s look at what the news from markets around the world might be telling us.

Firstly according to business news from Japan there is speculation that the Yen may weaken as investors place money into foreign-currency-denominated mutual funds when their end of year bonuses arrive. (source: The Nikkei June 6 morning edition) Already we have seen the Yen weaken against the Australian dollar throughout 2009 and it would seem quite likely at this stage that the AUD will trade above 80 JPY in the next few weeks.

Could we see the carry trade pick-up again? If so this would suggest that confidence is improving further within the financial markets. I suspect however what the Bank of Japan (BOJ) would really like to see would be a much weaker Yen against the U.S dollar as the relative strength of the Yen is not helping Japanese exporters.

From the U.S. Bloomberg reports that Slower U.S. Job Losses Signal Recession Is Starting to Ease , although payrolls did still fall by 345,000 so it isn’t like all is well. If you also factor in that so far 6 million jobs have been lost in the U.S. and that the full impact of the auto-industry bankruptcies has not been felt yet then there is probably not a lot to get excited about. Still as I have mentioned before, the stock market is looking for the end of bad news not for good news at this stage, and at least the bad news is not getting worse.

Regarding gold we often hear about supply being in decline but in Australia that is not the case according to this Reuters report posted on Mineweb.com. According to the report Australian gold production on way up again annual gold production is set to rise for the first time in 12 years. You probably won’t see that story being carried on any sites bullish about gold prices though, as these sites often like to suggest that gold production is in terminal decline across the globe.

As I have stressed a few times, gold follows supply and demand fundamentals just like everything else and if gold prices are high then new mines will be opened, old mines re-opened and production ramped up. If the world’s financial markets really do sort themselves out then gold may not look so tempting at prices above $900 USD an ounce. Yes I know I push the bearish gold case often, but I feel someone has to! (everyone else seems to be a gold bull these days!)

In China consumer prices are expected to show a dip in May and some Chinese analysts are even talking about a short period of deflation. (see: Retail, wholesale prices may dip in May.) But at this stage it seems there is nothing to panic about as it appears the downwards CPI movement is more of an adjustment than a long term trend. In any case, deflation is not quite as evil as many people seem to think it is and I doubt too many Chinese would complain about cheaper pork prices.

The Chinese economy remains very much in focus these days. If we accept that U.S domestic demand is likely to be reduced for sometime and perhaps on a per capital basis for the long term, then the global economy would need countries like China (and India) to take up the slack. This may seem like a tall order to some, but with a combined population of some 2.5 billion people I reckon there is scope in these economies to offset falling demand in the U.S. in the years to come.

Over in the U.K. political instability is unlikely to help the financial markets there in the short term. It would seem that Gordon Brown is politically speaking a dead man walking, but the question is who would replace him and would that person be any better able to deal with the crisis the U.K economy is facing?

So what can we make of all this news? Well firstly the news is a lot less gloomy then it was in the months after the Lehman Brothers failure. For one thing the references to the Great Depression appear to be fading out of the news and although economic data from across the world is not good, the rate of decline in many major economies is slowing.

In Australia’s case the economy is appears to be actually doing better than Q4 2008 according to the recently announced GDP numbers, but as I pointed out a few days ago I think this is more of a nice statistical blimp rather than any sign that growth has returned to the Australian economy.

I am not suggesting that the months ahead will present a path for investors paved with gold, but it would seem that the world’s financial markets have not fallen into a complete heap, your paper money is still good at the bank and life goes on. Of course at some point all the vast amounts of government debt across the world will need to be paid back, but that headache will hit us in the future and will present yet another challenge to the global markets.

One thing I would like to stress to investors is that they should try to gather information from variety of sources. Australian financial and business news is pretty average at best and is focused on Australian issues which of course is quite reasonable. But the global economy is very interconnected and so to really gain a good grasp of the issues that may affect your investments it is worthwhile to keep track of how other major economies are doing.

In a few months time I will do another quick check of some market news from across the globe and we will see then if the mood has improved or not.


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