Friday, July 10, 2015

Stock market equilibrium hanging together by a thread

The last few days have seen so many negative economic news from different parts of the world, and yet the US stock market has so far survived this turbulence largely unshaken (after some decline in the past several days, the US indices were up on Thursday and Friday).

Greece is facing a prospect of a third bail-out proposal, which is being seriously considered by Europe, because otherwise they would be forced out of the Eurozone as the only other alternative at this point. The latter scenario remains realistic, and would bring Greece’s economy to a halt and increase uncertainty in global debt markets, especially in emerging countries and the weaker European countries. This Sunday is an important date, because a European conference will be held on whether the new proposal from Greece can be acceptable to Europe.
At the same time, the recent 30% drop in value of the Chinese stock market has renewed talks about progressive weakness of the Chinese economy. In a recent article, the Times directly linked these two phenomena and said that, quite probably, the growth of the Chinese GDP is much lower than the currently official figure of 7.4%. If true, this would be a black swan for the global markets as China accounts for more than a half of global consumption of commodities and production of many goods.

In the face of all of this, the US stock market has demonstrated resilience, indicating that other more stronger forces are out there that the market in the US is considering. Most likely that is a further delay in any rate hike by the Federal Reserve, as the expectation of a September rate hike may be dwindling given the global situation. In the meantime, American corporations are entering the second quarter earnings season, and this may change the current equilibrium between local US and global economic conditions. As well, according to Bloomberg (see story on Yahoo Finance), short sellers of American stocks increased their bearish bets in June to the highest level since the financial crisis.

Ukrainian Credit Union Limited

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