Another rocky week expected

Traders on the floor of the New York Stock Exchange. Photo by Reuters.
Traders on the floor of the New York Stock Exchange. Photo by Reuters.
Investors should expect another rocky ride this week as fears about Ebola, the poor performance of Germany's economy and concerns about the end of the Federal Reserve's financial easing programme grip markets.

Craigs Investment Partners broker Peter McIntyre said compared with the damage wrought on markets from the global financial crisis, the latest iteration was a minor blip.

He believed the threat of Ebola spreading from West Africa was being under-rated by financial markets.

However, there was a lot of ''fear and greed'' in the markets.

Asked why October seemed to be the month when market volatility took hold, Mr McIntyre said there was an old saying often quoted.

''Buy in May and stay away - buy the market after the Melbourne Cup.''

With the Melbourne Cup due to be raced on November 4, markets were not too far from buying territory, he said.

Futures markets at the weekend indicated a recovery in share prices from previous lows during last week.

Oil prices were a key part of the volatility, with prices falling 20% since June, he said.

On Friday, Brent oil prices sank to a four-year low below $US83 ($NZ104.50) a barrel before recovering.

US consumers had started worrying whether the Fed would end its quantitative easing programme next month, as planned.

It had been spending $US10 billion ($NZ12.6 billion) a month since the 2008 global financial crisis in an attempt to stimulate the world's largest economy.

Some of the members associated with the Fed had started questioning whether next month was too early to stop the programme.

James Bullard, head of the St Louis branch of the Fed, is not a voting member of the bank's monetary committee, but markets will pay attention to his views as the Fed weighs its options.

He told Bloomberg Television he was concerned about falling inflation forecasts and said quantitative easing - the Fed's large-scale bond-buying programme - should continue.

''Inflation expectations are dropping in the US and that is something that a central bank cannot abide,'' Mr Bullard said.

Mr McIntyre said more bankers were now saying it was too soon to take it off.

''The concern is how the world's largest economy can hold up without its training wheels. If the Fed doesn't get it right, it will affect the rest of the world.''

Fed officials indicated they now believed it was better to provide over-stimulus than be caught short.

And that could mean the programme did not end next month, Mr McIntyre said.

Another problem for the markets was the number of large fund managers taking money off the table as share prices fell.

On Friday, about $US3.3 trillion had been wiped off indices following the recent fluctuations in share prices.

While some saw that as a buying opportunity, others continued to be driven by fear and had stopped investing, he said.

Europe appeared to remain in recession and China's growth, at 7.2%, was stellar compared to the West but it was a five-year low for China.

''Reserve Bank governors around the world are talking down their currencies - unprecedented.

"But in this situation, there will be winners and losers. You have to think if the US economy continues to improve, the dollar will rise and the kiwi will come down.''

dene.mackenzie@odt.co.nz

 


10 reasons for US market volatility

1 A shockingly weak retail sales number

2 The $US54 billion Shire-AbbVie deal falling apart

3 The September fall in the producers price index (PPI) and trading desks mentioning recession

4 A poor October manufacturing number

5 A second hospital worker contracted Ebola and travelled in an aircraft recently

6 The stock market in Greece came close to a full-blown crash

7 Islamic State

8 Falling oil prices

9 Mounting concern over global growth

10 The end of quantitative easing



 

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