Equities don't feel copper bottomed!

After Alcoa boosted equity markets on Tuesday, overnight it was coppers turn to put the skids back under equity prices. This was hot on the heels of the headlines that the World Bank lowered its growth forecast for the global economy to 3% in 2015. When one reads into the full report they do concede that developed economies should see an uptick this year boosted by lower commodity prices, continued low interest rates and also express the view that China is undergoing a carefully managed slowdown and growth will still be a robust 7.1%. Underlying one still has to feel that set of conditions should provide a reasonable backdrop for global companies to operate in, but that will probably not prevent more volatility in asset prices.

 

Equity markets did not even take much heart of the ruling from the European court of Justice in Luxembourg, that in their opinion Outright Monetary Purchases were not illegal. As we said at the start of the week, a negative opinion would not rule out the use of quantitative easing but a positive one must definitely help the cause.

 

Next week will be another tricky one for the ECB Chairman Mario Draghi, investment managers and market commentators are becoming more convinced its when, not if, the ECB move. If the ECB waits until after the Greek elections before making an official announcement, markets will want a pretty clear steer that an announcement is immanent.

 

The current volatility does unnerve investors, the S&P 500 trading 2-3 % ranges during the day, leading to its worst run for 3 months. Mining and mining related shares have obviously been hit the hardest as a result of the falling commodity prices. One is reminded at times like this of Warren Buffet’s words, buy when others are fearful, and it definitely feels as if there is quite a lot of fear, but it is always the hardest thing to do. There is also another adage in the city about not trying to catch falling knives. Time will tell how close we are to the bottom of this commodity rout, as oil rallied 5% at the end of the day helping stocks in the US bounce of the close, but one must remember, as 2008 proved crisis brings opportunity. 

 

Posted on January 14, 2015 .