Last week’s debt ceiling agreement in the US was, at first, greeted with relief. However, this soon dissipated when Standard & Poors stripped the US of its triple AAA credit rating and market mayhem was duly unleashed. The irony, of course, is that the US downgrade was not really as a result of whether the US is equipped to deal with its current level of debt, but rather the manner in which the whole issue has been handled.
Mayhem then turned to meltdown once the debt problems in Spain and Italy took centre stage once again, since when traders and investors have been running for the hills, or at least into gold which has been the main beneficiary of this current round of market turmoil.
The question, of course, is whether this is simply a replay of last summer’s market swoon or does it signal the start of something much more serious. In other words could we now be witnessing the final leg of the bear market which started back in 2000?
With little fundamental news due today markets will continue their reaction to last week’s events and focus on central banks and politicians as they try to regain control, not least of their bond markets although at at time of writing yields on both Spanish and Italian bonds have fallen following ECB intervention. However, the remainder of the week is a minefield with important data from China which starts tomorrow with CPI, Retail Sales & PPI before moving onto the crucial Trade Balance figures due out on Wednesday – a truly pivotal set of data.
Meanwhile in the US tomorrow sees the FOMC statement and Fed funds rate which is followed on Thursday by US trade balance figures and unemployment claims, before ending the week with core retail sales, retail sales and UoM consumer sentiment.
It goes without saying that these twin data sets will help to clarify whether there is still some hope of a recovery in the global economy or whether we will continue to suffer the fallout of the 2008 credit crisis with a consequent impact across all market sectors, not least equities, crude oil and the US dollar.