While the equity markets have not completely left the confidence-shaking volatility from early February behind, their ability to maintain a good portion of their gains from the recovery bounce has calmed investors and softened the negative vibes in the commodity markets.
Global markets have not regained a “risk on” tone, but they are showing signs of looking beyond the turbulent events of the past few weeks.
It could be a very volatile week ahead as the market deals with factors that could slow US economic growth in the short term.
The Fed symposium in Jackson Hole failed to offer any distinct direction on the state of the US economy, but recent Fed commentary suggested that a government shutdown off the budget ceiling battle and the possible effects from Hurricane Harvey could impact policy decisions next month.
Given the widespread deflationary liquidation wave of late and a lack of upbeat scheduled data flows, it is difficult to call for an end to the weakness in industrial commodity prices.
In retrospect, the recent sharp declines in equity prices and significant pressure on industrial commodities were justified by disappointing US scheduled data and the Fed’s move to notch interest rates upward.
The good news is that a series of potentially serious geopolitical issues were traversed recently without sustained damage to the global economy or investor sentiment.
By many measures the world economy continues to recover. The pace is apparently disappointing to commodities but not to equity markets.
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We hope that the Fed isn’t wrong about the recovery continuing, and we hope that the weak US data is a temporary trend and that the US economy is merely taking a pause.