What goes up...

What goes up...
Document type
Report
Author(s)
Harding, Rebecca
Publisher
Delta Economics
Date of publication
20 October 2014
Series
Trade View. 20 October 2014
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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Delta Economics weekly trade views anticipate and analyse forthcoming key economic data from Deltas unique trade perspective. This report is on ‘why markets should recover but uncertainty will remain’.

For almost all of this year, Delta Economics has been arguing that global equities are long overdue a correction. The reason for this is simple: there is a high correlation between trade values and the global markets (68% for the FTSE and S&P 500 and 85% for the Dax). There is an even higher correlation between trade and emerging market equities at over 90% for the Kospi. If the Delta Economics forecast for trade growth is flat, then it should stand to reason that markets will also under perform. But what goes up appears to be going up forever. Since the bull-run began, trade has been relatively flat while markets have reached unprecedented heights. Even the putative crisis in emerging markets at the beginning of 2014 failed to have a lasting impact on equities generally despite ever-more negative news about trade. As markets do not consider trade data as market-leading, this should not be a surprise. What appeared to happen during the second week of October was that market analysts reacted to suspicions that interest rates might rise and that Quantitative Easing might stop in October. Simultaneously they realised that the Ebola crisis in Africa could have an economic impact while tumbling oil prices raised a spectre of disinflation and poor German data put the Eurozone crisis back in the spotlight. So Delta Economics are expecting markets to continue to recover their lost ground in October, but for volatility to remain high.

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