DAVID MORRISON
CFD MARKET STRATEGIST, GFT
LAST week equities hit a brick wall. The US fourth quarter earnings season has been a disappointment so far. Companies are finding that a decent result on the bottom line just won’t cut it with investors if revenues haven’t improved. Also, the actions taken by the People’s Bank of China to tighten and remove liquidity-rattled markets, as has the prospect of the US ending stimulus measures by the end of March. Last week also reminded investors of the role politics plays in the markets.
When the financial crisis hit, government interventions globally were broadly coordinated and focused on shoring up the banking system. This year there are already signs that consensus will be of less concern as politicians focus on domestic issues as they fight to win power.
In the UK, the general election is expected to take place in early May and traders will track opinion polls. A hung parliament would bring no clear leadership to address the budget deficit. Consequently, any narrowing in the Tory lead will become a headwind for the markets.
In Europe, deterioration in Greece will mean that Germany has to choose whether to help Greece, which would be unpopular domestically but may avoid a split of the EU, or instead stand aside, given the strains on its own finances?
In the US, the Republican victory in Massachusetts last week showed how political surprises affect markets, and November brings the mid-term Congressional elections. But far more pressing is Ben Bernanke’s confirmation vote by the US Senate at the end of this week. From being a certainty, the odds on Bernanke’s reappointment lengthened sharply last week. Many on Main Street are angry with the Fed chairman. Some blame him for the crisis; some for missing it. More are disgusted with his solution to it and they are letting their representatives know. With 35 senators up for re-election this year, they will be mindful of public opinion when they cast their own votes on 31 January.
