FYI | Mar 13 2007
By Greg Peel
“The panic of early March is becoming a fading memory”.
So say the economists at Macquarie Bank. Equities, currencies and fixed interest have all made strong recoveries. Most notably, the Chinese stock market and Japanese yen have both turned around.
The Shanghai index is now only 3% below its peak in February, and still 10% up for 2007. The yen has retraced about half of its gains against the US dollar. Macquarie puts this change of heart down to more evidence of firm global growth.
Along with favourable economic data, equities were boosted by falling interest rates. US yields jumped after better than expected payroll data, but are still 25bps (basis points) below the levels of early February.
Nor is there any sign that central banks will upset the current mood, Macquarie notes. The European Central Bank tightened monetary policy last week, but that looks like it for now. Neither is there any sign that the Fed or Bank of Japan will make any changes in the near term. Easy money conditions will prevail.
This does not mean another panic episode will not suddenly hit, as while things have settled down markets are still on edge. However, failing that, Macquarie economists suggest “the foundations of equity markets are actually stronger now than they were a month ago”.
On the gold front, FNArena noted yesterday that the world remains largely bullish on gold and that market guru Dennis Gartman had correctly ridden the spot price down before loading up again recently. However, Gartman was having second thoughts yesterday and is looking to take a quick, small profit on the recent longs, and stand aside.
Under normal circumstances, Gartman would have expected the rally back from the recent low below US$640/oz to be accompanied by increasing volumes in ETFs, Comex futures and physical trading. However, the opposite is true.
Volumes increased in the sell-off, but as we’ve turned around volumes have waned. It runs against Gartman’s trading experience and intuition to back a market when there doesn’t seem to be much interest to do so from elsewhere. While not suddenly becoming bearish, Gartman has lost confidence in his long position for now, and has squared up to see what happens next.
It is notable that on FNArena’s mark of 4pm New York, the gold price has remained unchanged for three days at US$650.20/oz. This does not mean trading has ceased to exist, however, as Friday saw a peak of over US$657/oz and last night a trough of under US$646/oz. The US$650/oz mark is an important level. Perhaps everyone’s waiting to see some direction established.