PMC Weekly Market Review, May 23, 2014
It was another week in marketland characterized by churning but little else. Several major retailers including Target and Home Depot reported less than stellar earnings, as Walmart had earlier, and then proceeded to blame such weakness on the weather. We will see soon whether the weather was indeed the culprit, but such results only underscore that rather weak economic growth evidenced early in 2014.
Nonetheless, markets have held up, and aside from a brief spike in volatility late last week, trading has been decidedly range bound. The release of the Federal Reserve meeting minutes did not fundamentally alter the picture of gradual tapering of the Fed’s quantitative easing and bond buying program combined with highly accommodative interest rates. In fact, Reuters (among other new outlets) reported that in private (or not so private as the case may be) conversations, former Fed chair Ben Bernanke has been speculating that interest rates on the 10-year Treasury may not see 4% again in his lifetime.
Meanwhile, in Europe, European Central Bank head Mario Draghi has made it clear that the challenge of deflation in the Eurozone will necessitate the ECB to undertake its own stimulus program, which means that the world is not about to see much of a liquidity challenge even as the Fed becomes slightly less active.
One of the most consequential market developments has little directly to do with markets, namely the stunning and sweeping victory of India’s Narendra Modi and his BJP party on a platform of economic reform. Most assumptions of future global economic growth assume an India that has been sputtering, but if the new government with its powerful mandate succeeds in unlocking the immense potential of India, those economic assumptions will prove to have significantly underestimated the future. One never knows, of course, but it is certainly possible that India could have the same transformative – and unexpected – effect on the global system in the decade to come that China has had in the decade past. Something to ponder, and watch carefully, as the year progresses.
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