The current world situation has some points of instability for the markets. Last year, the earnings were quite high after the financial crisis years, but 2014 began with a more complex landscape, mainly in the emerging markets, as we have written before in this blog.
As we see in the chart above, the main trend is still bearish for all the markets. What is happening? The first problem has to do with central banks. Janet Yellen, new chairwoman in the US Federal Reserve, seems to be “dovish” as she prefers to delay somehow the taper of the quantitative easing or, at least, wait more for an increase of the interest rates (announced for 2015), not linked to a concrete unemployment rate. Is it good? Not necessary, if the Fed mentions in today’s and tomorrow’s meeting that the US economic recovery is slower than expected.
On the other side of the Atlantic, ECB chairman Mario Draghi announced surprisingly in last press conference that the institution will not take any decision in the monetary policy although the credit flows are still low, there are downside risks for inflation and the exchange rate euro-dollar is touching the psychological 1.40 $ border. This exchange rate is risky for European exports and has influence in the decrease of the inflation, as import prices pressure to lower prices. An outlook of lower prices is critical, because it delays consumers and investors decisions to buy.
In the Asian front, China worries the markets, as there are some dangerous signs related to the financial and the export sector, amongst others. But the markets follow carefully the developments in Ukraine. Recent political events in Crimea increased concerns for the effects of the economic sanctions imposed to Russia by the EU and US, apart from the risk of a conflict on the land.
Next weeks will be decisive to watch the evolution of the markets: will instability be part of 2014? Or are all of these risks just an exception in a possible upward trend?