During the course of post crisis period, central banks’ concerted monetary operations aided to camouflage the dismal backdrop of macroeconomic fundamentals in major economies. The enthusiastic sentiment in the short term money and equities markets encourages continued appetite for speculative actions among investors. It appears that central banks’ flooding the markets with massive amount of cash continues to help elevating the equities markets across the globe.
Currently, low readings at TED spread , historically low level of fear and bullish formation at equity indexes indicate that unless there is a surprising news on the economic data, markets will continue upward movement for a foreseeable future.
In the previous report, we issued a warning for the flight from bellwether 10 year U.S. Treasury bond market and rising interest rates. Fed chairman Bernanke’s speech at Capitol Hill that “QE to Infinity” will stay for quite some time eased the pressure on the rates somewhat. However, we will continue to keep an eye on watching bond market developments closely for the coming weeks. Because, resurgence of any upward pressure on the interest rates will spell a trouble for the improving U.S. real estate market and the rest of the economy. Another minor issue is the softness in the commodity markets. Weak demand in the industrial metals may be sniffing underlying weakness in the real economy. For the healthy improvement in the economy, commodity markets must confirm the rising equity markets. If deflationary metal prices are persistent, the improvement in sentiment may be short lived and even reversed.
