STATE OF GLOBAL FINANCIAL MARKET

                           STATE OF GLOBAL FINANCIAL MARKET

I would like to discuss about few points in this discussion

1. US EQUITY MARKET

2. TAPERING TALK

3. IMPACT ON US BOND MARKET

4. DAMAGE TO ASSETS ACROSS THE GLOB

5. WHY EMERGING MARKETS ARE IN MESS

6. WHATS GOING ON IN CHINA AND BRAZIL

DO YOU RECOGNIZE THIS PERSON?

HE IS MOST SECOND POWERFUL PERSON IN THE WORLD RIGHT NOW. JUST GUESS I WILL REVISIT THIS SOME TIME LATER

1. US EQUITY MARKET

Do u remember how this year started. We are now in the month of July and if we look at the year 2013 first half of the year is over and if we do a little rewind and go back and look at the issues that were confronting the market at the start of 2013. Do you remember there was a term “FISCAL CLIFF” and I am sure many of u may now had even forgotten about it and the amount of fear the fiscal cliff phrase was creating. The Fiscal cliff was the combination of tax increases and spending cuts which lot of people feared would push the US economy back to recession. But thankfully US government acted on time  and the combination of fiscal cliff and the supportive steps from the US Fed helped the US market and just have a look  at the SP 500 CHART

The period from sep – dec 2012 the SP was stalling at the level of 1460 but when the news came the Fiscal cliff was getting resolved in Jan 2013 the s&p made a big push and broke out above 1460 and if u see the first of 2013 it has been a nice up trending chart and every time small corrections came it took support at 50 DMA and its only in the month of June SP500 has broken the 50 day moving average and has sustained below it and till date it is  trading below 50 dma  which is kind of concern for the market and technical traders are saying that the S&P will fall to 200 day moving average of 1511.So even thought the first half of 2013 was great there is been a fear that things may not be that good for at least few more weeks or months. Generally the declines are fast and furious and may not be a prolonged one and what ever deeper correction the market want to go through will go through in very quick time. That’s the SP500 and if we want to come out with a fundamental based on charts

IN THE FIRST HALF OF 2013  S&P 500 POSTED 12.6% RETURN WHICH IS THE BEST SINCE 1998 DISPITE THE 1.5 % CORRECTION IN JUNE .QE WHICH HAS ACTING AS A HEAD WIND FOR THE MARKET NOW MAY BE ACTING AS A TAIL WIND 

2. WHAT IS THE TAPERING TALK

Before I talk that let me explain what is QE- QUANTITATIVE EASING

QUANTITATIVE EASY IS THE ANOTHER FORM OF MONEY PRINTING

QE was started by BAN BARNAKE at the peak of the financial crisis in 2008 and the idea was to print money and use that money to buy bonds from the banks and then give them cash. Now the banks will be flushed with cash because the bonds will be moved to fed and that cash can be used by banks to lend out an it will boost the economic activity and that’s how the economy can revive. US government did QE1, then QE2 and in Sept 2012 they started the QE 3.What is QE 3. Every month the fed will go out and buy 85 billion worth bonds in that 40 billion will be mortgage bonds and 45 billion will be treasury bonds so that much money will go to the banking system so it will kick start the economic activity. What happened was that on may 22 the US FED CHAIRMAN MR.  Ben Bernanke  in  a testimony before the congress said that economic growth is reviving so that the bond buying program can be eased off ( ex you are going on an highway and your are taking your foot from the accelerator not applying brakes) THAT IS CALLED TAPERING JUST EASING OF BOND BUYING PROGRAM.

4.WHAT IS THE PROBLEM?

WHEN QE 3 STARTED THERE WAS NO END DATE. It was a surprise for the market the QE 3 may end soon and another important thing for the market is it always looks for THE DIRECTION OF THE POLICY & SIGNAL TO THE MARKET. As now the market knows the QE program is going to stop it starts it will start pricing in the impact of that much in advance and as a result what happened was interest rates started to rise. QE means  banks will be flushed with cash so the cost of money will go down but if QE ends cost of money starts to move up and that get reflected in the rise of interest rates. The biggest impact was seen on the bond market 

10 years US TREASURY CHART

What  you see above is 10 year yield chart If you see the chart in OCT 2011  it was around 2.3 – 2.4 % it again peaked  in April 2012  to same level and then got sold off .Then just see in the month of June 2013 it broke out above that level right now interest rates are hovering around 2.5 % .Technically  there happened a large candle break out which means interest rates have reset to a new level and it’s for real. One of the strong points of US recovery is its housing market so the first thing that happened was the interest rates on mortgages started moving up. The trends have started and no one knows where its heading one thing is sure that the base rate will be 2.4% WHAT DOES THAT MEAN?

END OF BULL MARKET IN BONDS

WHILE UPDATING IT WAS 43 BILLION IN JUNE BUT AS PER LATEST REPORTS BY JUNE END IT WAS 80 BILLION

When interest rates raise price of bonds falls and yields go up which means the bull market that going on in bond market came to an end. June recorded the highest monthly outflows from the bond market about 80 billion in a single month that was the kind of panic that was in bond market in US

CURRENCIES

US BOND YIELDS SET THE BENCH MARK FOR THE COST OF MONEY AROUND THE WORLD

Europe sovereign yields

Emerging market Bonds

Emerging market currencies

Gold which yields nothing

You look at ITALY, SPAIN, PORTUGAL the 10 year yields in last 2 months have risen sharply which was hovering around 5 % and if they go above 6% they will not even able to service their debt. These countries will just break apart. That’s the problem with risen interest rates and that is why markets across the globe are so nervous

5. WHY EMERGING MARKETS ARE IN MESS

Chart of emerging market stocks

See the chart and you can see 2013 started on an optimistic hope and see how it has fallen and in last few weeks of June last it rallied but it definitely feels it’s in terrible bear market .Look at the SP 500 its up by 12% and emerging markets is down 10 %, you can see a out performance of S&P. There is a reason you look at all emerging markets like china, Brazil, India, turkey all are in terrible conditions

LETS TALK ABOUT EMERGING MARKETS

NOW REMEMBER AT THE BEGINNING OF THIS DISCUSSION I ASKED YOU TO GUESS ABOUT A PERSON. DO U KNOW WHOM HE IS The President of the People's Republic of China Xi Jinping

He is little bit of low profile till now but he has started asserting his leadership which is little bit different from previous one and he is giving a very serious message to the Chinese public and economy we are moving away from GDP obsession to more welfare and social and environmental indicators. Message is very clear that Chinese government is no more interested in stimulus reckless lending and credit expansion and move to slow and steady growth. The market pretty much captured that when there was recently the Chinese shybor shot up by 12 % .What puzzled many was the response of PEOPLE BANK OF CHINA which was very mute.

THE MESSAGE:

THE GOOD OLD RECKLESS CREDIT PRACTICES ARE COMING TO AN END. BANKS SHOULD PULL BACK ON LENDING. One global fund manager told the best way to play china is not to play at all

WHATS HAPPENING IN BRAZIL

CHART OF BRAZILAN INDEX

 

JUST SEE THE CHART ITS GOING ONE WAY DOWN AND THERE IS A HUGE PROTEST GOING IN BRAZIL which is making people more nervous   you will be surprised to know the trigger for the protest

 JUST 10 CENT HIKE IN BUS FARE

PROTESTORS DON'T WANT FIFA WORLD CUP, OLYMPICS  THEY WANT SUCH HUGE FUNDS TO USE FOR HOSPITALS BETTER WAY OF LIVING  THIS SOCIAL UNREST IS BECOMING A NEW PHENOMENA  WORLDWIDE

My idea was to go through the global markets in my next report I will be looking purely into the global financial markets. Hope you find this article useful. Thanks for your patience in reading this.