Market Briefing

The markets, which have been boosted by the Fed’s super liquidity policy, continue to defy the gravitational pull of the weak economy. Due to excess dose of cash injected by the central banks of U.S., E.U., Japan and U.K., global markets continue to be heavily tranquilized. Currently, low readings of TED spread point to excess liquidity and calm interbank markets. Extremely low level of volatility and continued bullish formation at major commodity and securities indexes indicate that optimistic perception invades the markets and frantic bears take shelter to hibernate for the winter. Unless there is a shocking news on the economic data, markets are expected to continue upward marching for a foreseeable future. The only concern right now is the foreigners flight from bellwether 10 year U.S. bond market and rising interest rates. Continued upward pressure on the interest rates may spell trouble for the improving U.S. real estate market. We will be watching this closely for the coming weeks.

Notwithstanding the dismal backdrop of macroeconomic fundamentals in major economies, the optimistic sentiment in the short term money and securities markets encourages continued appetite for speculative actions among investors. It appears that central banks’ concerted action of flooding the markets with massive amount of cash helps re-float the sinking asset classes across the markets.

While the monetary authorities’ unprecedented intervention is at odds with the basic principles of macroeconomic fundamentals, we must admit that they were able to give a kiss of life to ailing economies.

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