So we made it through September and October without a crash. This is great news for punters (if not the spreadbet firms!) as statistically, these are the top two months of the year for the markets in terms of crashes across the globe.
With so much macro-economic dislocation; the Eurozone crisis, the
American fiscal cliff risk, the slowdown in China, the Japan/China
face-off…the list is enormous and that’s without even mentioning the
Middle East yet!
Yet, despite of all of the above, somehow the markets have managed to
put in a pretty decent return for the year so far - certainly in the US
and, to a lesser degree here in the UK. The disasters have been
selected Southern Europe, Japan and China - areas that this magazine
are tipping to be outperformers next year - such is the way of
market dislocations - what are major underperformers one year and
certainly when 2 or 3 years in succession, generally outperform the
The unprecedented monetary stimulus and negative real interest rates
in the UK & US are the primary reasons for the buoyancy in markets
and also the lack of any real volatility this year as the VIX pays
testimony to. This combination seems to have done the trick so far.
Now, in November we have 2 major events which will set the global macro-scene for some years to come.
Both are political, the once in a decade change in China and the
American election. Now Obama is a strong favourite to win in the US and
an incumbent win is traditionally good for the markets as it signals
stability - the markets hate instability. Both 1998 and 2004 were years
ending on a high in the US after an incumbent win (Clinton & Bush).
In China, the news is bound to be more opaque, but by the 15th
of November we will know which of the political clans have taken over.
Already, with the downfall of the Bo’s who were leaders of an old
communist, left wing element, the signs are that the new leaders will be
strong and relatively reformist. Again this should be good news,
firstly that there is a stable handover and secondly that economic
reform and growth will continue.
A third event of less global impact will be the Eurozone approving a further Greek bailout on 12th November;
recent statements by French and German ministers suggest this will
happen. So another piece of can kicking to delay the euro-crisis coming
to a head looks to be in order.
The year-end nearly always sees a Santa rally in December, but
perhaps this year the political events will create an earlier momentum,
leading to possible big index gains at points in November before the
Santa rally - in contrast to the historical record as detailed in this
blog - http://www.spreadbetmagazine.com/blog/will-november-be-friendly-for-equities.html.
Mind those shorts and watch those risk-on assets for big price movements when the opportunity to bank profits are presented.
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