Central banks to test investors
Fri Oct 30, 2009
4:01pm GMT
By Jeremy
Gaunt, European Investment Correspondent
LONDON (Reuters) - Investors are
fixated about when stimulative monetary policy will come to an end, expecting
it to be the finale for a sweet period on financial markets that has seen world
stocks rise as much as 75 percent in seven months.
With that in mind, the coming week should be striking, with a feast of
events ahead that touch directly on the issue.
There are meetings at major central banks, including the Federal Reserve and
European Central Bank, as well minutes from the past meetings of others. Then
there is a G20 finance ministers meeting.
To top it off, investors will be have to digest the monthly U.S.
jobs figures, which is always a sensitive report and goes directly to another
investor fixation, the state of the world's largest economy.
All this comes as investors are showing signs of fatigue, at least in the
short term, breaking down the patterns that have dominated markets since March.
World equities as measured by MSCI .MIWD00000PUS were likely to end Friday
with their second weekly loss in a row and only minimal month gains.
The dollar, too, was heading for one of its better weeks of late against
major currencies .DXY.
Some of this may be a matter of profit taking and -- at least to judge from
Reuters latest asset allocation polls -- large investors may see any weakness
as a buying opportunity.
The polls showed leading investors rebuilding their equity holdings during
October from a month earlier.
But investors have also entered a period of bumpy trading where the
assumption is no longer that equities will rise.
"There is still not that much confidence in the upswing," said
Klaus Wiener, head of research at Generali Investments. "The strong rally
from the low is over. Until there is some certainty, markets will be more
volatile."
BANK BONANAZA
One of the uncertainties is the future of the liquidity that has been behind
much of this year's financial market recovery in the form of both ultra-low
interest rates and so-called quantitative easing, or QE -- essentially printing
money.
Investors have long known the time will come when central banks begin
drawing some of this liquidity back in.
At that point, the market climate may not be so conducive for riskier assets
such as equities, which have benefited from plentiful cash or for safer
investments such as government bonds, which have been underpinned lately by the
QE programs.
The first stirrings have already been seen, with rate hikes in Australia
and Norway and
with policy exits being discussed elsewhere.
How far along this has gone should become evident in the week ahead when a
remarkable confluence of central bank activity takes place.
As well as the Fed and ECB, there will be similar policy meetings at the
Bank of England and Royal Bank of Australia.
Minutes will also be published of the last meetings of the Bank of Japan and Sweden's
Riksbank.
The Fed and BoE are likely to stick to their current stance, but the ECB may
be ready to at least think about unwinding some of its QE, just as the BOJ has
said it will. Australia,
meanwhile, could hike again.
"The general run of central bank comments now is all along the lines of
'we have missed that bullet, we can begin to normalize'," said Ian Bright,
an economist at ING, referring to last year's scare of a financial meltdown.
GAUGING GROWTH
The G20 finance ministers' meeting in Scotland at the end of next week may
well be an opportunity for investors to see the degree to which all this is
being coordinated and monitored.
It could also be a test of whether the G20 unity manifest during the worst
of the crisis will survive now that national economic performances are
diverging more markedly and domestic political concerns are less uniform.
Not surprisingly, economic recovery remains key to investor sentiment. Wall
Street put in its best one-day percentage gain in three months on Thursday
after GDP data showing the U.S. economy had grown in the third quarter for the
first time in more than a year.
Next week's big indicator will be the U.S.
jobs data on Friday. Analysts are still expecting jobs to have been lost during
October, but see a significant decline in the monthly number of losses.
"GDP turned around sentiment. If we get a better labor market report,
markets can improve," said Generali's Wiener.
http://uk.reuters.com/article/idUSTRE59T2HP20091030
Fri Oct 30, 2009
4:01pm GMT
By Jeremy
Gaunt, European Investment Correspondent
LONDON (Reuters) - Investors are
fixated about when stimulative monetary policy will come to an end, expecting
it to be the finale for a sweet period on financial markets that has seen world
stocks rise as much as 75 percent in seven months.
With that in mind, the coming week should be striking, with a feast of
events ahead that touch directly on the issue.
There are meetings at major central banks, including the Federal Reserve and
European Central Bank, as well minutes from the past meetings of others. Then
there is a G20 finance ministers meeting.
To top it off, investors will be have to digest the monthly U.S.
jobs figures, which is always a sensitive report and goes directly to another
investor fixation, the state of the world's largest economy.
All this comes as investors are showing signs of fatigue, at least in the
short term, breaking down the patterns that have dominated markets since March.
World equities as measured by MSCI .MIWD00000PUS were likely to end Friday
with their second weekly loss in a row and only minimal month gains.
The dollar, too, was heading for one of its better weeks of late against
major currencies .DXY.
Some of this may be a matter of profit taking and -- at least to judge from
Reuters latest asset allocation polls -- large investors may see any weakness
as a buying opportunity.
The polls showed leading investors rebuilding their equity holdings during
October from a month earlier.
But investors have also entered a period of bumpy trading where the
assumption is no longer that equities will rise.
"There is still not that much confidence in the upswing," said
Klaus Wiener, head of research at Generali Investments. "The strong rally
from the low is over. Until there is some certainty, markets will be more
volatile."
BANK BONANAZA
One of the uncertainties is the future of the liquidity that has been behind
much of this year's financial market recovery in the form of both ultra-low
interest rates and so-called quantitative easing, or QE -- essentially printing
money.
Investors have long known the time will come when central banks begin
drawing some of this liquidity back in.
At that point, the market climate may not be so conducive for riskier assets
such as equities, which have benefited from plentiful cash or for safer
investments such as government bonds, which have been underpinned lately by the
QE programs.
The first stirrings have already been seen, with rate hikes in Australia
and Norway and
with policy exits being discussed elsewhere.
How far along this has gone should become evident in the week ahead when a
remarkable confluence of central bank activity takes place.
As well as the Fed and ECB, there will be similar policy meetings at the
Bank of England and Royal Bank of Australia.
Minutes will also be published of the last meetings of the Bank of Japan and Sweden's
Riksbank.
The Fed and BoE are likely to stick to their current stance, but the ECB may
be ready to at least think about unwinding some of its QE, just as the BOJ has
said it will. Australia,
meanwhile, could hike again.
"The general run of central bank comments now is all along the lines of
'we have missed that bullet, we can begin to normalize'," said Ian Bright,
an economist at ING, referring to last year's scare of a financial meltdown.
GAUGING GROWTH
The G20 finance ministers' meeting in Scotland at the end of next week may
well be an opportunity for investors to see the degree to which all this is
being coordinated and monitored.
It could also be a test of whether the G20 unity manifest during the worst
of the crisis will survive now that national economic performances are
diverging more markedly and domestic political concerns are less uniform.
Not surprisingly, economic recovery remains key to investor sentiment. Wall
Street put in its best one-day percentage gain in three months on Thursday
after GDP data showing the U.S. economy had grown in the third quarter for the
first time in more than a year.
Next week's big indicator will be the U.S.
jobs data on Friday. Analysts are still expecting jobs to have been lost during
October, but see a significant decline in the monthly number of losses.
"GDP turned around sentiment. If we get a better labor market report,
markets can improve," said Generali's Wiener.
http://uk.reuters.com/article/idUSTRE59T2HP20091030