Monday, 16 March 2009

Mood music is improving for global equities

Improved sentiment for equities was apparent in trading in Asia on Monday and, as this is being written, the European markets are continuing to move higher. The Euro has pushed above the $1.30 level which has somewhat surprised me but for now it appears that the renewed risk appetite for stocks and more speculative instruments appears to be working against the US dollar.

My sense is that sentiment is still rather fragile and it would not take too much to cause a sharp drop again but the bear market rally could have further to go. My target for the rest of the month would be 825 now on the S&P 500 as it represents a rather pivotal intersection point of the trend lines drawn on the chart above. Longer term it still seems that there could be further downside to explore - but that’s for another day.

Sentiment is being helped along by a slightly more positive assessments from central bankers and the spin doctors will continue to keep the markets guessing with window dressing for the G20 meeting in London on April 2nd.

To provide some flavor to the improving mood music here is Mr. Bernanke, interviewed on 60 Minutes on Sunday on how long the recession might last.

"It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis. We’ve seen some progress in the financial markets, absolutely. But until we get that stabilized and working normally, we’re not gonna see recovery. But we do have a plan. We’re working on it. And I do think that we will get it stabilized, and we’ll see the recession coming to an end probably this year. We’ll see recovery beginning next year. And it will pick up steam over time."

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