Friday, 19 August 2011

Mike Lenhoff: Market tactics 19 August 2011


2% bond yields or 4% dividend yields? You pays your money, you takes your choice!

Measured from this year’s peak in February, global equity markets, using the FTSE All-World Index, have seen a drop of some 18 percent to their low point reached last week. Much of this drop has come with the sudden sell-off this month and behind much of the sell-off lies the concern over eurozone debt sustainability, the growing risk in the major developed economies, notably the US, of a relapse into recession and the loss of economic momentum in the developing world.

None of the concerns are exactly new. The latter has been primarily ‘policy induced’. For the eurozone, with concern over debt sustainability having broadened not only to include Italy and Spain but more recently France, the sovereign debt crisis has moved beyond the peripheral economies to the core. In doing so, it has brought even more into focus the banking crisis that always was and the destabilizing influence of the debt crisis for the financial system as a whole.

On top of this the economic news has been mixed to disappointing. An example of the latter came earlier in the week with the release of second quarter GDP for the eurozone. Although the figure was only a little below expectations, German growth was particularly weak. Add to this not only the loss of recovery momentum for the US economy - yesterday’s Philly Fed survey was startling to say the least - but also the sharp downward revision over the past month in expectations for GDP growth, and the prospects for the global economy look far from promising. More >

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