The tale of the first quarter tape is in and evidenced by the large gains of the equity markets, global investors have benefited from the sea of liquidity provided by the CENTRAL BANKS OF THE DEVELOPED WORLD. Global stock markets have been calmed by the massive liquidity injections provided by the BOJ, ECB, FED and BOE.The German DAX closed the quarter up more than 15%. The long dormant NIKKEI was up almost 20% powered, by the new inflation mandate of the BOJ/MOF; and, of course, the S&Ps were up almost 12%, while the tech-ladened NASDAQ climbed more than 20%.
The move out of the safety of the GLOBAL BOND MARKET would have been more pronounced except that the massive SEA OF LIQUIDITY was riding the wave of CENTRAL BANK BOND PURCHASES, or is now conveniently referred to AS QE (QUANTITATIVE EASING). The risk on paradigm was the dominant theme of the first quarter. The markets have been calmed but as this weekend’s headline in the Financial Times proclaimed: CRISIS IS NOT OVER, EU REPORTS WARN.
So as we enter the second quarter, expanded stock rallies will be tougher to find but if EQUITY MARKETS churn sideways in search of a genuine global growth story, that will be no small feat. Last week Chairman Bernanke assured U.S. markets that the employment situation in the U.S. is far too fragile for the FED TO REMOVE ITS EXTENDED PERIOD LANGUAGE.
Europe is of course a highly complex and volatile situation and under the guiding hand of ECB PRESIDENT MARIO DRAGHI is more concerned about growth than inflation and will be looking for various ways to enhance ECB lending programs. April brings the first round of the FRENCH PRESIDENTIAL ELECTION so calm should prevail as Sarkozy will be trying to present himself as the only leader that France has with the ability to calm a crisis. Spain is certainly on financial market radar screens as the next EURO PROBLEM CHILD, but the Spanish situation will just have to wait until the political situation in France is resolved.
The Japanese have learned that an overly strong YEN in a fragile GLOBAL ECONOMY is no virtue, while a rising NIKKEI built on increased liquidity is no vice. The British authorities have certainly applied increased liquidity but its economic impact has been very lackluster. There are worries that the U.K.‘s austerity budget is beginning to weigh on the economy and fresh fears of a new recession are on the rise.
While the FOOTSIE has been the weakest of the EQUITY MARKETS, the BRITISH POUND closed out the quarter over $1.60 for the first time since June 2011. For the quarter, the U.S. DOLLAR and the JAPANESE YEN were the weakest currencies ,reflecting their roles as GLOBAL FUNDING VEHICLES. Europe’s LTRO programs brought calm to the EURO currency and a brief respite, but as AUSTERITY BUDGETS TAKE HOLD THE EURO’S LOW INTEREST RATES AND ECONOMIC WOES WILL BRING RENEWED SELLING PRESSURE. Again, the QUARTER is over so refresh your technicals and be prepared for the volatility that will certainty follow the massive liquidity injections.
Tags: Agustin Carstens, Aussie Dollar, austerity, Bernanke, BOE, BOJ, British pound, bull steepening, ECB, equity markets, EU, Euro, Fed, Footsie, Glenn Stevens, Mario Draghi, Mexican peso, Mexico, NASDAQ, Nikkei, QE, RBA, S&P, Yen