Up one week, down the next?
So much for a weak US share market in July, or at least the 7% S&P500 surge last week did not indicate weakness. Unfortunately movements of this magnitude are more a sign of the volatility and uncertainty at present rather than a compelling signal of confidence (5 of the last 7 weeks with 5%-plus surges have been followed by a weekly decline!). Importantly the earnings season is only just starting, with only 38 of the 500 S&P500 companies having reported so far.
The most likely scenario remains a broad sideways pattern for global financial markets, including the NZD, while the risk of a sell-off of risky assets cannot yet be dismissed. Tellingly, the S&P500 remains below its June high; likewise the major currencies, including the NZD, against the USD. Very little is ever certain about the future but current trading still looks more like noise.
Support for a scenario of general financial market sideways movement came from two quarters last week: Morgan Stanley forecast the US government 10-year bond yield to range trade between 3-3.75% over most of second half 2009 (any growth surge being tempered by underlying subdued US consumption growth – sound familiar?); and CBA predict the oil price to broadly centre on US$60/barrel for the rest of the year (there being excess supply available to meet any demand increase).
