Economic skies continue to brighten as some of the most troubled areas of the world (the Euro zone and Japan) are beginning to show some improvement and the only major nations that appear to be degrading are Brazil and Russia.
Not surprisingly, the Euro zone debt crisis continues to linger, and the situation in the Ukraine remains highly fluid.
A number of central banks have implemented fresh easing efforts, German and European economic prospects have shown some minor improvement, and the prospect of lingering cheap energy prices is starting to offer global consumers new confidence.
While we think the bear case for the global economy is already overstated, more long liquidation selling in crude oil is possible.
An impressive January rally in gold, a shift from a spec and fund net short position to a net long in US Treasury Bonds and a dramatic downside extension in the Canadian Dollar on its monthly charts suggests that global economic sentiment is factoring in a fall back towards recession.
Global Negative Sentiment in many ways has probably already exceeded rationality. To the bears’ credit, unrelenting declines in crude oil, copper and equities justifies some fear of slackening demand.
Recently a talking head on a major television business program was lamenting the ongoing pressure on equities due to the weakness in energy-related shares.
The events in the second half of 2014 will do more to stimulate the global economy than all the central bank and governmental efforts combined.
Sometimes the problem with a cure is that it takes too long to work. In the case of sagging crude oil market, it appears that it has become daily confirmation that the global economy is slowing down.
The ongoing fear of global deflation just doesn’t fit with most of signals flowing from the marketplace.