New round of monetary easing spree bodes well for asset prices
Updated: 2012-12-22 06:48
By Puru Saxena(HK Edition)
|
|||||||
According to my methodology, Wall Street remains in an uptrend and a resolution of the fiscal cliff may spark a big rally. Even though the world's economy is sluggish, the Federal Reserve's QE-ternity program is adding approximately $1 trillion new currency units each year and this monetary inflation is pushing up asset prices. At this stage, nobody knows for sure but it appears as though the "stimulus" will probably continue for another two years and this will prove to be favorable for risky assets.
Across the pond, Mr Draghi has already pledged to save the Euro at all costs, policymakers have recently voted for further monetary easing and Greece has recently received its latest bailout. Thus, even in Europe, it appears as though the policymakers have decided to "kick the can" and this is bullish for asset prices. Finally, it is notable that the Japanese have also commenced their own "stimulus" program and this will further add to the ongoing festivities.
In terms of sectors, biotechnology, consumer staples, financials, homebuilders and home improvement stocks are leading the pack in the US market and I suggest exposure to these strong sectors.
Turning to commodities, it is notable that both copper and crude oil have fallen below the 200-day moving average. Furthermore, a variety of agricultural commodities are also showing signs of weakness and this action is in line with my bearish view. Although central banks are providing "stimulus", these newly created currency units are not inflating private sector debt. Thus, inflation is not an immediate threat. Moreover, the world's economy is passing through a lean patch and under this scenario, a sustainable rally in commodities is highly unlikely.
Over in the precious metals arena, the price action has become bearish and both gold and silver have fallen below their recent lows. Furthermore, both metals have now slipped below the 200-day moving average and unless the price action improves, precious metals should be avoided.
In the world of currencies, the US dollar is weakening and its trend is down for now. In my view, a deal in Washington may exert further downward pressure on the greenback, so this is not the time to keep US dollar cash. Instead, the European currencies are acting well and I recommend exposure to the British Pound and the Euro.
Finally, over in the fixed income market, high yield credit and peripheral European bonds are soaring and this rally is likely to continue for several weeks. Elsewhere, German Bunds and US Treasury securities are weakening and as this "risk on" rally gains momentum, these safe haven assets will probably depreciate further.
(HK Edition 12/22/2012 page2)