Five days - that’s how long it took global financial markets to recover before another cocktail of bad economic news combined with disruptive political announcements removed what little courage had been mustered. This sent global stocks and some commodities into a tailspin while government bond yields reached record lows and gold continued its record breaking run to the upside. In the week ahead focus will be on what comes out of the annual meeting of global central bankers as last year’s outcome sent commodities on a month rally.
Non-cyclical commodities support the index
The Reuters Jefferies commodity index was nearly flat on the week as weak performances from energy and base metals were offset by strong rallies among soft commodities and especially precious metals. The best performing commodities year to date are not surprisingly gold and silver followed by corn as risk adversity and weather more than growth factors have been the main drivers.
Anniversary of QE2 approaches
As we approach the annual gathering of global central bankers at Jackson Hole on August 25-27 attention will turn to what Federal Reserve Chairman Ben Bernanke says. Last year he used this venue to announce the second round of quantitative easing which in turn helped trigger a month-long rally in commodities and other assets. With inflation on the rise his options will be limited this time around but the market will nevertheless be looking for guidance on where U.S. monetary policy is heading.
Bond yields tell desperate story
While stock markets plunged government bond yields fell to the lowest levels in decades on weaker than expected U.S. manufacturing and unemployment data. In Europe weak economic data together with rising fears about the financial health of some of its banks added to the negative sentiment and triggered a rush towards secure government bonds.
