Despite the roller-coaster few trading weeks we have had to kick start the new year we look to be back on track heading towards the new ‘All-time Highs’. Despite some relatively poor earnings from European companies, we saw a strong bounce from technical levels. We have seen the FED take the foot off the gas in terms of QE and despite the minor pull-back markets have begun to look past its reliance on QE and focus on new matrices for its direction.

So what is the market looking at? I think for the first time in a long time we are slowly moving back to a more normalised economic situation, a situation where good news is good news and bad news is bad news. Although in order for this to play going going forward we will need to FED under Janet Yellen to maintain the reduction in asset purchases in line with its current mandate.

Can we go higher I suppose is the question that most investors and individuals want to know? It is my belief that that valuations are no longer attractive in US equities, these equity markets are now being driven by expectation of strong corporate earnings growth, better developed economic data, and a prolonged period of low interest rates. I don’t believe that the current economic backdrop is strong enough to support the equity markets at these levels. We have continued to see money flowing back into European equity markets along with European periphery bonds as the situation in Europe seems to be coming together slowly but surely. We also saw one of the worlds top hedge fund managers George Soros make a $1.3bn bet against the S&P500 at these levels, and this is something that I would take note of.

What to watch out for this week?

  • US markets were closed yesterday for President’s day so we will be keeping an eye on how the US futures point ahead of this afternoons open. They should be a few points to the good as the European equity market put in a strong performance.
  • We have the January FOMC minutes on Wednesday and we are likely to see further reiteration that the FED will continue on course to taper by an additional $10bn per month.
  • This morning we saw UK inflation slip to 1.9% from the 2.0% target from the BoE.



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