Globe finance

Emboldened by new highs and early signs of rising yields, risk appetite has pushed to a new high for the year. However, the progress made week-over-week was very limited. Once again, investors and traders have reached the point where caution and skepticism has stalled the steady appreciation that the markets have otherwise carried on with since February. Perhaps we have come to the next tipping point in speculative interests where stable fundamentals are needed to draw in the next wave of funds to feed the capital gains of those that have already taken the plunge. And if there were ever a single piece of event risk that could confirm or rebuff forecasts for a stable, bullish market and a revival of yields; it would be the quarterly growth data. Heading into this heavy round of economic data, we can see the hesitation in price action. For the currency market, the dollar may still be on its bearish path; but its pace of descent has clearly cooled. EURUSD is arguably the benchmark for the pace and direction of the top funding currency candidate; but AUDUSD is better for measuring market sentiment. Despite being spurred on by the RBA’s aggressively hawkish monetary policy stance, the pair has stalled this past week at 0.93. This is unusual considering the fundamental contrast seen between the US and Australian dollars. Even the more accessible and popular equities market is showing indecision. The benchmark Dow Jones Industrial Average has loosely been confined to a 10,100 to 9,900 range since last Wednesday. It seems, regardless of what direction sentiment eventually takes, we will soon find some resolution on direction.

In the past weeks and months, we have seen multiple instances of congestion after a leg of bullish price action; and inevitably, optimism picks up where it left off. The is the nature of any market. A trend will eventually grow exhausted; and that offers the opportunity for continuation or a reversal. The speculative rally that the markets have been able to run for most of the year is still running well beyond the reasonable limits of the fundamental backdrop; but a few developments may have actually furthered confidence and ensured the next round of sidelined capital finds its way into the speculative arena. The outlook for yield has taken a notable turn for the better over the past week. The RBA took another broad step into hawkish territory recently when Governor Glenn Stevens said that he would tolerate further appreciation in the Aussie dollar in his efforts to rein in monetary policy. And, though this was the most unabashedly hike-oriented language to come out of the central bank circles; we have seen a subtle shift amongst many authorities. The BoE is expected to announce its intentions to take a break from its quantitative easing efforts at its next rate decision in November and the Fed is testing reverse repos in the money markets as a way to remove liquidity from the market without collapsing bank balance sheets. The next fundamental milestone is the third quarter GDP numbers. China has already confirmed an impressive pace for the period; but the United Kingdom’s reading will be the first for an industrialized country. What’s more, since the UK is considered the underperformer of the G-20, it could define the lowball estimate for global growth. Next week, the stakes are raised with the activity report for the US.