Short view By Philip Coggan - Financial Times - Financial markets may have suffered in the correction that began in early May.
Short view By Philip Coggan
Published: August 3 2006 03:00 | Last updated: August 3 2006 03:00
Copyright The Financial Times Limited 2006
Financial markets may have suffered in the correction that began in early May, but the worst now appears to be over. While investors still worry about higher interest rates and the clashes in the Middle East, markets have recovered a lot of the lost ground.
The S&P 500 index, for example, fell about 100 points between May 9 and its June 13 low and, by the close on Tuesday, had regained about 50 points. The FTSE World Index, having dropped 48 points between May 9 and June 13, has regained 22.
Developed and emerging markets are lower than when the correction started but, in many cases, the losses are less than 10 per cent. The notable exceptions are Japan, India and Brazil, where the consensus got a bit carried away earlier in the year, Israel (for obvious reasons) and Turkey, where investors suddenly remembered the risks they were running.
As is typical in a correction, defensive sectors, such as tobacco, pharmaceuticals and food retailers, have done best; all have gained since May 9. The volatile technology sector has been hardest hit, along with cyclical sectors such as construction and mining.
Such market movements would seem to point to perceptions of an economic slowdown. The 10-year US Treasury bond yield is lower than it was on May 9, although only by about 15 basis points. But the economic fears have not delivered one much-anticipated dividend: a fall in the oil price. Crude is now about $4.50 a barrel or 6 per cent higher than it was in early May, thanks mostly to Middle East turmoil.
This can be interpreted in two ways. One could see the market rebound as a sign of the resilience of the system, with investors focusing on fundamentals such as strong corporate profits and a rebound in the European and Japanese economies.
Or one could see market movements as a sign of investor complacency. Emerging market bond spreads, as measured by JPMorgan, have fallen below 200 basis points over Treasuries, a low level by historic standards. That suggests the turmoil of the past three months has not diminished investors' appetite for risk.
Copyright The Financial Times Limited 2006
Published: August 3 2006 03:00 | Last updated: August 3 2006 03:00
Copyright The Financial Times Limited 2006
Financial markets may have suffered in the correction that began in early May, but the worst now appears to be over. While investors still worry about higher interest rates and the clashes in the Middle East, markets have recovered a lot of the lost ground.
The S&P 500 index, for example, fell about 100 points between May 9 and its June 13 low and, by the close on Tuesday, had regained about 50 points. The FTSE World Index, having dropped 48 points between May 9 and June 13, has regained 22.
Developed and emerging markets are lower than when the correction started but, in many cases, the losses are less than 10 per cent. The notable exceptions are Japan, India and Brazil, where the consensus got a bit carried away earlier in the year, Israel (for obvious reasons) and Turkey, where investors suddenly remembered the risks they were running.
As is typical in a correction, defensive sectors, such as tobacco, pharmaceuticals and food retailers, have done best; all have gained since May 9. The volatile technology sector has been hardest hit, along with cyclical sectors such as construction and mining.
Such market movements would seem to point to perceptions of an economic slowdown. The 10-year US Treasury bond yield is lower than it was on May 9, although only by about 15 basis points. But the economic fears have not delivered one much-anticipated dividend: a fall in the oil price. Crude is now about $4.50 a barrel or 6 per cent higher than it was in early May, thanks mostly to Middle East turmoil.
This can be interpreted in two ways. One could see the market rebound as a sign of the resilience of the system, with investors focusing on fundamentals such as strong corporate profits and a rebound in the European and Japanese economies.
Or one could see market movements as a sign of investor complacency. Emerging market bond spreads, as measured by JPMorgan, have fallen below 200 basis points over Treasuries, a low level by historic standards. That suggests the turmoil of the past three months has not diminished investors' appetite for risk.
Copyright The Financial Times Limited 2006
posted by Carlos T Mock at 6:48 PM
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