Judging by the market outlook commentaries over the weekend and last night, it’s going to be a seventh negative week for global markets this week.
And I don’t suppose that will change very much for another month or so, or until there’s a piece of news from the US or China that can cut through the gloom.
Six down weeks up to last Friday for markets in Asia, Europe and the news was gloomy, with few signs of any positives.
Greece was downgraded overnight by Standard & Poors to the lowest rating in the world, Triple C, just two notches above default (C).
Surprisingly markets didn’t tank, they just staggered and wandered lower.
The weak health of the US economy is given as the major driver of the negative sentiment, but in reality it’s all about what happens after the end of this month when the Fed stops its second round of quantitative easing.
And sitting in the back of the minds of many in the markets are two other deadlines: the July 1 cut off date for the next round of finance for stricken Greece, and August 2 when the US debt ceiling is reached and the chances of default skyrocket.
The Financial Times reported that big US banks are starting to cut back on the use of US Treasury securities in financial dealings for the fear the August 2 deadline might spark an inadvertent default declaration, or an actual one by a market participant such as a ratings agency.
All three major ratings groups (Moody’s S&P and Fitch) have issued public warnings about the possibility of August 2 impacting America’s credit rating.
Major banks and investors are starting to hoard cash as August 2 approaches.
And this report in yesterday’s Financial Times is perhaps the best summation of the current situation.
"The worry is that risky assets such as equities will not fare well once the Fed stops pumping money into the system. Steve Lear, deputy chief investment officer at JPMorgan Asset Management, argues that investors’ appetite for risk and the Fed-fuelled surge in liquidity are intimately linked.
"Recent data certainly seem to support this concern. The S&P 500 has fallen in the six weeks since the start of May, its worst run since 2008. Safe-haven assets, however, have done well, with benchmark 10-year US bond yields slipping below 3 per cent, from a recent high of 3.6 per cent in April.
"Those moves have taken place against a backdrop of weak macroeconomic data in the US, from sputtering growth in gross domestic product and an unemployment rate back above 9 per cent to the housing market entering a double-dip recession."
US bonds ended at 2.97% on Friday for the 19 year security and were 2.99% overnight Monday.
And at the weekend the AMP’s chief strategist Dr Shane Oliver wrote in his weekly note:
"Although shares are oversold and due for a bounce, the wall of worry remains high for investors in the short term.
"Concerns about softening business conditions indicators, the struggling US housing market, the end of QE2, rate hikes in Europe when debt problems still loom large, recession in Japan, a hard or soft landing in China and broader inflation concerns in emerging markets, high oil prices and the two speed economy in Australia’s case are all likely to contribute to ongoing volatility in shares and possibly more weakness in the September quarter.
"However, beyond the latest outbreak of worries the fundamentals for shares are encouraging.
"Valuations show shares are now quite cheap, some of the temporary factors weighing on growth are abating (such as Japanese supply change disruptions, the surge in oil prices and bad weather in Australia’s case) and monetary conditions globally remain very easy.
"This all points to an eventual rebound in shares into year end.
"Given their sensitivity to the strong Australian dollar and the prospect of higher interest rates, Australian shares are likely to underperform their global counterparts.
"While the Australian dollar remains vulnerable to a further short term correction, it should remain strong on the back of high commodity prices and a high interest rate differential to the US."
So basically, gloom before some light at the end of the tunnel.
Asian markets were weak yesterday after Wall Street’s sharp losses on Friday which sent it down 1.3% for the week and 6.7% in the six weeks to last Friday.
Following the tumbles on US markets, SPI Futures fell 44 points to 4533.
Friday’s fall on Wall Street made our 12.5 point gain on Friday look odd indeed.
At the market close on Friday, the benchmark ASX200 index was up 12.5 points, or 0.3%, at 4562.1 points.
The All Ordinaries index rose 13.2 points, or 0.3%, to 4634.9 points.
That was a loss of half a per cent for the week, making it three weekly losses in a row, and six out of the past seven weeks.
In the US, the six weeks of falls for the S&P 500 up to last Friday was the longest since 2008, so comparisons with a year ago (when the background was very similar to now) are probably not that sound.
And the Dow’s six weeks of losses is the longest since October 2002, so again the comparison with 2010 looks weaker.
It’s not that the Fed’s second easing has failed (no one has been able to say where the market would be now if it hadn’t moved to the second easing), it’s more that investors of all sizes don’t like the growing uncertainty, which
