The securities market is currently more like cattle grazing on the grass than a raging bull1.
Last weekend, the agreement by the central banks of the USA and Europe to maintain low interest rates for an appropriate time, acted to encourage the government securities markets. In the USA, Europe and the UK the price of government securities rose simultaneously. In the US, the yield on 10-year government securities fell to 3.45%, in Germany they fell to 3.9% and in the UK they fell to 3.62%. The information recently released by the central banks initially eased the market uncertainty and unease regarding the sudden release of large scale loose monetary policies. This stabilised the market interest rates.
US housing data and consumer durable orders, as well as German business confidence were all much better than analysts had predicted. However, the reaction of the stock market to this has not been significant. The stock markets have only risen slightly during the whole week, with the Chinese “A” Share market (quoted on the Shanghai Stock Exchange) lagging behind. The price of sugar rose to a 28-year high, whilst the prices of lead, copper and soya beans are showing great market strength. The price of oil has fallen back, and the price of US natural gas has tumbled to a 7-year low owing to supply-side effects.
Last week's strong economic data has confirmed that the global economy will emerge from a state of recession in the third quarter of this year. GDP growth looks set to bounce back. However, we will need to see whether the rise in vehicle and property sales is directly related to government subsidies. In the next few quarters, economic growth may not look as good as that of the third quarter this year. I2 believe that the momentum of the recession is weakening, but the strength of the recovery is weak and quite variable. Moreover, the turnaround in employment and [availability of] credit is lagging behind GDP recovery.
This Wednesday, the EU’s second quarter GDP predicted chain index3 was -0.1%, a fall of 4.7% from the same time last year (compared to -2.5 and -4.9% from the last period). On Tuesday, the US August ISM4 index estimate climbed back up above 50 (50.5 compared to 48.9 in the previous period). On the same day Europe released its August PMI5 figures (47.9 compared to 46.3) and Australia also released figures. In Japan, the results of the general elections may have an effect on the exchange rate of the yen (last Sunday the value of the yen rose, reflecting the market’s prediction of a landslide victory for the Democratic Party of Japan).
(This column is posted on this blog every Sunday and is shown on CCTV2 on Monday morning during ‘Securities Hour’. This is only an individual opinion of the market and is certainly not any investment advice or a suggestion).
Notes: 1 A metaphor. i.e. the demand for securities is weak and the market is stagnant.
2 笔者：A Chinese expression meaning 'the author' i.e. 'I'.
3 A statistical measurement comparing a value with that of the previous period.
4 The Institute of Supply Management Index (ISM), used to assess the strength of manufacturing.
5 The Purchasing Managers Index (PMI), used to assess the strength of manufacturing. Essentially the same as the ISM index.