Sunday 4 November 2012

November Risk On?

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 subsequent year.

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.

This post is bought to you by site sponsor, Spreadbet Magazine.

6 comments:

Anonymous said...

I haven't heard anyone call Obama any kind of favourite for a good month or so now. The race is at least tied perhaps with Romney out front.

I think a Romney win is a strong possibility and people in the UK are going to be flabbergasted if he does. Most people in the UK still view Obama as he was in 2008 when he was elected on some kind of personality cult and Bob the Builder quotes, but that lies in tatters now. He's gone from New Labour 1997 to New Labour 2010 in only 4 years.

Anonymous said...

Yeah Anon.

I don't know what will happen as I think the polls are manipulated, but I'd be more surprised if Obama wins than Romney.
There are states that are now being called close that he won easily before.

Obama gained a lot of votes from people who wanted to be part of the historical moment of having the first black president, its not going to be the same this time.


Not that I think Romney will be much different in reality though.

Anonymous said...

Vote fraud is going to swing it, Obama has implemented the same wheezes Labour did.

CityUnslicker said...

Right I am doing a new post on this now, Romney has never even got close - the media love a battle and are hyping the loser to make it seem close.

Thanks for your comments, I like it when the inspire me!

andrew said...

The publisher might need to rebase the graph to allow for changes in the exchange rate.

Agence communication said...

this is very interesting """ 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 subsequent year.""