There is Uncertainty in Global Markets

Last week, trading on global markets was very uncertain due to investors’ fears that the U.S. Fed will soon reduce its stimulative monetary programs.

On Wall Street last week, the Dow Jones index strengthened by 0.9 percent to 15,248 points, while the S&P 500 rose by 0.8 percent to 1,643 points, and the Nasdaq index increased by 0.4 percent to 3,469 points.

Throughout the week, trading was very uncertain as investors feared a reduction or even the elimination of the stimulative monetary measures of the U.S. central bank.

For a long time, the Fed’s programs for purchasing government and mortgage-backed securities at $85 billion per month have represented the main lever for the growth of stock prices, which have recently reached the highest levels in history.

However, uncertainty has prevailed in the market since two weeks ago when the central bank’s chairman, Ben Bernanke, stated that the reduction of these programs would be discussed at upcoming meetings if the economic situation improves.

Recently, the president of the Kansas City Fed, Esther George, who has always opposed the bond-buying programs, called on central bank leaders to reduce the amounts for these programs. Reducing these programs, George said, would help decrease the financial markets’ dependence on cheap money.

Investors last week anxiously awaited each new macroeconomic data point that could indicate whether the Fed would tighten monetary policy.

Particular anticipation surrounded the employment report in the U.S., which is extremely important as the Fed has set the improvement of the labor market as the goal of its loose monetary policy.

On Friday, it was announced that in May, the number of employed increased by 175,000, slightly more than expected, but the unemployment rate rose from 7.5 to 7.6 percent.

This positively affected the market as it is estimated that the data is neither strong enough nor weak enough to prompt the U.S. central bank to change its monetary policy.

“The entire week was marked by uncertainty due to investors’ fears that the Fed would reduce its stimulative monetary programs. However, after this data, it is quite clear that the Fed cannot eliminate, let alone reduce these programs. Paradoxically, this has stimulated the market,” says Brian Amidei, a director at HighTower Advisors.

However, analysts expect continued uncertain trading, and the further direction of the market will depend, they say, on upcoming macroeconomic data as the economy, after a long period of growth based on printing fresh, cheap money, should finally embark on a path of sustainable growth.

“Market uncertainty prevails because it is in a transition phase from growth based on increased liquidity to growth based on economic fundamentals,” says Michael Sheldon, a strategist at RDM Financial.

In European markets, however, stock prices fell last week. The London FTSE index weakened by 2.6 percent to 6,411 points, while the Frankfurt DAX slipped by 1.1 percent to 8,254 points, and the Paris CAC fell by 1.9 percent to 3,872 points.

On the Tokyo Stock Exchange, the Nikkei index plummeted by 6.5 percent last week to 12,877 points. On Friday, it briefly dipped into ‘bear territory’ as it lost more than 20 percent since reaching its highest level in the last five and a half years two weeks ago.