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A storm in a teacup or a major tremor before the main event?

Published Tuesday, September 1st, 2015

We have just witnessed a week like no other. A week in which the first half saw equities and commodities collapse in price on concerns that something is badly wrong in China followed by a second half which produced a breath-taking rally triggered by an enormous upward revision in US 2Q GDP growth. At the beginning of the week the subject on everyone’s lips was China. At the end it had reverted back to second guessing when the Federal Reserve will increase interest rates. If Disney was building a theme car ride based on the ‘markets’ then last week provided the template and the names for each bend — Manic Monday, Turnaround Tuesday, Wobbly Wednesday, Thrilling Thursday and Flip-Flop Friday.

Will those caught up in the maelstrom be scarred for life and should those lucky enough to be away when the storm hit relax and wave it off as an oddball 5 days that is better ignored? Was it simply a storm in a teacup brought on by another one of those market tantrums that erupt every now and again to keep everyone on their toes and eventually evaporate? Or was it a significant tremor giving pre warning of a major earthquake to follow?

It is doubtful that last week will have changed many people’s opinions. Pessimists will be as gloomy as ever about market direction, feeling vindicated by all that has happened in China and emerging markets this month. Optimists will be as gung ho as ever vindicated by the 3.7% US 2Q growth figure and the subsequent market rebound. Those of a more cautious mentality will be even more cautious, worried that there is no smoke without fire and alarmed that if a major fire does break out the central bank fire brigade is running out of water.

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Posted by David Hufton