The markets always rely on data, hopes, hopelessness, desperation, fear, greed and whatnot when it comes to deciding direction. But the game-changer is when governments/governmental institutions chip in with some announcement and change the course of the markets.
The recent announcement by ECB President that the bank would do whatever it takes to stimulate growth in Euro Zone had initiated a commodity rally. The rally plummeted when the ECB President backtracked. And many individual investors lost money.
Similarly, the markets really got jitters when Dallas Federal Reserve President Richard Fisher said central banks may not have enough firepower left in them to trigger another growth cycle. A few hours before that, almost at the dead of the Indian night, gold climbed on speculation that central banks may take steps to bolster their respective economies!
But the gold rally was limited after the same Richard Fisher said adequate economic stimulus already is in place!
Of course, he was mentioning two different things in two different contexts and was giving clear signals. And occurrences of this genre should be expected from time to time.
So how would one weather these statement-induced market fluctuations? Simple, rely on data when it comes to arriving at a trend. After all, that is how institutional investors make money!
For example, oil dropped from the highest close in two months when data came out that demand is dampened in US. Weak expectations for German growth also pulled down the markets.
The trends based on these kind of data are much more reliable when it comes to deciding the market direction; rather than statements that mark empty speculation and unfounded optimism.
See below a few snippets from fresh Bloomberg reports:
• Investors expect European Central Bank President Mario Draghi to flesh out a plan to shore up Spanish and Italian bonds.
• The Bank of Japan (8301) started a two-day policy meeting amid speculation that it may weigh alternative monetary policy.
• China’s yuan climbed to a one-week high against the dollar on bets that the government will take steps to revive economic growth.
• The Bank of Japan (8301) started a two-day policy meeting amid speculation that it may weigh alternative monetary policy.
• China’s yuan climbed to a one-week high against the dollar on bets that the government will take steps to revive economic growth.
Do you really think these events are about to occur? Nobody knows. It is better to be safe than sorry.
Trust data and not statements or media speculation.
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