Sunday, October 26, 2014

>GREED & FEAR: Jokowi Update (CLSA)


Wall Street equity benchmarks are back near record highs on relief stemming from America’s renewed military involvement in Iraq, however limited, and the, for now, seeming lack of escalation in Ukraine. Still GREED & fear continues to view the Ukraine situation as one likely to trigger more stress for markets since there is, so far as GREED & fear can tell, no concrete evidence that Russian President Vladimir Putin has backed down.

As for US equities, the incremental reduction in tapering represents a rising risk as does the
fact that the US Treasury bond market is still not confirming the narrative of the consensus,
namely an assumed cyclical acceleration in the American economy. Still the coming days of
central bank speech making at Jackson Hole, with related deliberations on the labour market, should make markets even more sanguine as Chairwoman Janet Yellen is likely to remind investors further, if such a reminder is needed, that she is the uber-dove. Meanwhile, aside from the bond market, the rising fundamental risk to the US stock market is perhaps best illustrated within the equity universe by the fact that American small caps have been underperforming since March. Thus the Russell 2000 Index peaked in early March and has since underperformed the S&P500 by 9.7% (see Figure 1).

To see figures and read full report: JOKOWI UPDATE