Global Investing

The U.S. economy probably created 210,000 jobs last month, according to a Reuters survey. If the forecasts are accurate, the government’s jobs report on Friday would mark the first time since early 2011 that payrolls have grown by more than 200,000 for three months in a row. Refresh chart

China’s annual consumer inflation slowed sharply to a 20-month low in February, and factory output and retail sales also cooled more than forecast, giving policymakers ample room to further loosen monetary policy to support flagging growth.

Greece averted the immediate risk of an uncontrolled default, winning strong acceptance from its private creditors for a bond swap deal which will ease its massive public debt and clear the way for a new international bailout.

The debate in global financial markets is whether the new year’s rally is either just pausing or coming to an end.

Many say the rally so far has been driven by only thin volumes (for more on volumes read this story) and thin volume rallies tend to outlive high volume stampedes.

The market certainly seems to be getting very long — which itself suggests that the market was due for a correction one way or another.

Markets are down again today (MSCI world index down 0.7 pct so far this morning) and the market overall is nearing a bear market territory again (from a three-year high hit in May).

But asset managers are starting to look forward.  JPMorgan Asset Management reckons that if one assumes the current bear market for most equity indices started in 2000 and that the the trend of the previous experiences is to be repeated, then the current environment should be ending around 2014 (By the way, those who predict stock market cycles with sunspots activity reckon the year 2012 or 2013 is the bottom, but that’s a different story.)

But 2014 does seem a long way off.

“While this may sound depressing from 2011, we hasten to add that we are not expecting the ongoing bear market to result in continued downside, but rather in persistence of broad range-trading prior to a sustained breakout to the upside,” Neil Nuttal of JPM AM writes.

More tough talk from Hungarian officials on the ‘unjustified’ weakness of the country’s currency, which has dropped 11 percent against the euro this year to all-time lows.

This time, it’s central banker Ferenc Gerhardt arguing that the weakness of the forint is out of sync with economic fundamentals and blaming it on the debt turmoil in the euro zone.

Perhaps he should look a little closer to home.

Hungary’s drift from orthodox economic policy since the centre-right government took over the reins last year has made it the most exposed of eastern European economies.

The Federal Reserve's "Operation Twist" has set the literary- and musical-allusion juices flowing.  It is all about the Fed selling or not rolling over short-term debt and buying long-term bonds instead in order to keep borrowing costs low.

But that is frightfully dull for economists, analysts and reporters trying to get attention for their work. So, so far we have heard:

-- "Let's Twist Again", a reference to the 1960's Chubby Checker record about the dance craze . Problem is that the second line is "Like we did last summer", and the Fed did nothing of the sort, launching plain old quantative easing instead.

So it’s not just investors who are guilty of moving in a herd-like fashion.

Financial journalists use the same verbs and nouns with greater frequency as stock markets overheat but display more variety in their phraseology after the bubble bursts, a study by Irish computer scientists has shown.

Trawling through nearly 18,000 on-line news articles that mention the Dow Jones, FTSE and Nikkei stock indices between 2006 and 2010, Aaron Gerow of Trinity College Dublin and Mark Keane of University College Dublin found that the language used by the writers had become more similar in the run-up to the global financial crisis.

What a week it has been for Egypt.  All the regional political upheaval  happened in Tunisia, half a continent away, but most of the pain has been felt on Cairo’s financial markets. The Egyptian stock market has fallen almost 8 percent and the Egyptian pound is languishing near seven-year lows to the dollar. The cost of insuring exposure to Egyptian debt has risen to 18-month highs.

So are investors preparing for a Tunisia-style popular uprising in Egypt? Or is it that its market, more sophisticated than Tunisia’s, is bearing the brunt of investors’ increasing bearishness on the North African region? Probably a bit of both.

Egypt faces elections later this year and 82-year old Hosni Mubarak, president for almost 30 years, is likely to run again. Just like much of North Africa and the Middle East, inflation, especially food inflation is high while youth unemployment rates are higher than most of the developing world. Risks of uprisings are seen highest in Egypt and Jordan, where there is relatively more political freedom than, say Libya, but leaders lack the oil wealth cushion that the Gulf states or Libya boast. Given Egypt’s “youth bulge” — the proportion of the population comprised of young men aged 15-34 –regime change is a risk, reckons Charles Robertson, chief economist at Renaissance Capital.

Can nature’s cycles enrich our finance and market theories?

Market predictions based on the alignment of the sun, moon and the earth and other cycles could help investors stay disciplined and profit in economic storms, says Daniel Shaffer, CEO of Shaffer Asset Management.

Shaffer writes that sunspot activities show that the sun has an approximate 11-year cycle and as of March 31, 2009, sunspot activity has reached a 100-year low (this, interestingly, coincides with a cycle low in equity markets, reached sometime mid-March in 2009).

But a low in solar activity seems to be followed by a high. Scientists are predicting a solar maximum of activity in sunspots in 2012 that could e the strongest in modern times, according to Shaffer.

Interesting twist at the moment – how are financial markets going to view not-so-bad or good data out of the United States in the run-up to the next Federal Reserve meeting.

Investors have been pricing in a chunky operation by the Fed to feed the markets with cheap cash – look at the gold, silver, the Australian dollar and the Canadian dollar. Bad data from the United States will keep investors confident of such Fed action and support the flows into high yielding assets.

But any data showing the pace of recovery in the world’s largest economy is not in such a bad shape. Investors will adjust their expectations and positions, causing a sell-off in equities, speculative-grade credit and high-yielding currencies.

Are global equity markets under an ‘Even Years Curse’ that sees them underperform bonds in even-numbered years but beat fixed-income returns in odd-numbered ones? After some number-crunching, Fidelity International’s’ director of asset allocation Trevor Greetham suspects so.

“It’s not just hocus-pocus but to do with global inventory levels,” he explained at a forum organised by the London-based investment house.

The inventory cycle typically lasts about two years. ‘Up’ years are good for company profits and equity prices with the inverse true when inventory levels are being drawn down. And over the last decade, Greetham notes, the ‘stocking up’ years have been odd-numbered calendar years while inventory draw-down years have been even-numbered ones.