I have been thinking of writing an article on market changes in the light of new events that did not surfaced until late end of January. Two issues come to my mind. Firstly, uprising in Middle East and second one is catastrophe in Japan.
http://graphics.thomsonreuters.com/11/03/GLB_KEY0311_SB.html
Uprisings in Middle East have created new uncertainty. In my mind what is happening in Middle East has parallels to catastrophe created by continental plate displacement in pacific basin. Uprisings have hit Tunisia, Egypt, Bahrain, Saudi Arabia and Libya. All these countries are being ruled by autocratic regimes for decades. This has created societies with rancor for government due to lack of political freedom and opportunities to survive. As old adage goes demography is destiny, populations were rising in these countries and have attained a critical mass where they can cause displacement of the existing regimes by venting their frustration. In the case of Tunisia and Egypt regimes were overturned. In other countries the process is progress and time will tell when it has happened. These events are shaping the course of world financial markets.
Catastrophe in Japan is another event that is shaping financial markets course. Scientists have put together tomes of research on plate tectonics and what happens in their wake in computer simulations. This is like trading on a practice account. Continental plates in pacific basin near North Japan have shifted and resulted in huge release of energy leading to Tsunami and earth quakes along the coast line of Japan. Japanese people have learnt from past experiences how to protect them from tsunami and earth quakes. But this time tsunami and earth quake have hit the nuclear power facilities and creating a catastrophe beyond imagination. This has set alarm bell around the world to review their existing procedures for safety in place. Japan will come out of this catastrophe with a big lesson for the rest of the world in terms of how to create a better nuclear facility.
I will go over various markets and how they were affected by these events,
US 10y treasury: 10 year treasury rates have stated their journey this year at around 3.30 %. At this time markets were pricing QE2 exit, housing recovery and EM world driven growth. Treasuries were literally in range bound market. I guess treasury markets needed a kick and Egypt uprisings have answered the call. But instead of safe haven bid treasuries shrugged this event and went on rising path. But Libya’s eccentric Gaddaffi put break to this rise in rates and brought international focus to Middle East. Infact this created uncertainty in oil markets and this got transmitted to other markets. This is difference between an eccentric Gaddaffi and suave Mubarak. Some times it pays to be eccentric. As this crisis in Libya is playing out between forces loyal to the ruling regime and rebels treasuries were grinding down. After this Treasuries were finding a level or were ignoring the crisis in Libya and started to rise. Another hurdle came in the form of Japan. This brought this market to high of 3.55 to 3.28 level, same as where we have started the year.
S&P 500 : US Equity markets, have started year at 1257 and were marching higher despite uprisings in Middle East. At the time of crisis in Libya SPX has received 1330. Looks very impressive testimonial for Federal Reserve’s new mandate to prop the stock market when they are in doldrums. But after that markets volatility increased and started moving around aimlessly. Finally tsunami brought bears out of hibernation to settle market at 1257.
VIX: VIX is a measure of volatility in the stock market and this has been falling for a while and remaining in range bound levels. Libya’s crisis brought in volatility and crisis in Japan and Bahrain elevated volatility to highs of 30.
Nikkei 225: Japanese Equity markets have been least correlated to these global events. But they have entered into downslide from the levels where it has started the year after the nature’s wrath fell on Japan.
Oil: Oil markets were on the rise since end of last year. This has been the response across all commodity markets due to fed’s loose monetary policy. Prices of everything are going up. Producers were able to pass the price increases to their customers. Recently at a Taco bell in Texas an angry customer fired his gun for price 50 % price rise on his beef tacos.
Gold : Gold has fell from historical highs to rise again as crisis is erupted in Middle East and Japan.
No comments:
Post a Comment