After several successive falls on the trading floor, it feels normal that there would be an upward correction. But does this mean that trends are changing? Are we riding a new bullish wave? Not really.
Economic fundamentals do not look better. The US is seeing really low growth, China is trying not to overheat and Europe is still dealing with marginal debt. Above all two very important doubts exist.
First, what will happen after the Fed does away with its stimulus? Second, what will happen with Greek, Portuguese and Irish debt? Share prices seem cheap for obvious reasons.
And majority of fund managers are getting liquid to cover themselves.
No capitulation... no QE3
In the June Bank of America-Merrill Lynch Fund Managers Survey investors raised cash, reduced risk asset exposure and rotated to defensive sectors. But investor panic is not yet visible. The recent drop in global growth expectations stabilized and despite sharply lower inflation readings, two-thirds of investors predict no QE3.
Growth expectation stabilise
Growth and profit expectations stabilised after recent sharp falls. Inflation expectations fell to 38% from 69% two months ago. But the macro backdrop is not seen as weak enough to warrant more stimulus: three out of four panellists think a recession unlikely and only 13% expect a new round of QE in H2.
