Big News in the Markets
On Friday August 31st, the annual speech of Fed Chairman Ben Bernanke will take place in Jackson Hole. By the time you read this, the world markets will have heard this year’s address titled “Monetary Policy since the Crisis”. I’m not entirely convinced we are now fully past the crisis and can look back, but we have come a long way and things are starting to settle down.
Of particular note is the “VIX” or volatility index that tracks the unstableness of the markets is at a 5 year low. While being as high as 47 points earlier this year, it’s currently sitting at 15. This continued drop in market volatility is certainly a welcome sign.
Chairman Bernanke’s speech will mark the beginning of a very important month of upcoming information and announcements. The US Federal Open Market Committee (FOMC) has previously indicated in very clear terms that they are ready to add further stimulus, “QE 3”, to the markets if economic data does not reach the high bars they have laid out. While market data has improved over the past few months, it has not been substantial or sustainable enough to reach these lofty levels.
His speech is expected to expand on just what additional monetary stimulus will look like and you can bet the whole investment world will be watching. Shortly after, the FOMC will meet on Sept 12th and 13th and review these economic goals they have laid out. In all likelihood, they will enter these September meetings and decide that the data has not met its pre-conditions to avoid additional monetary accommodation.
The other major upcoming event that we anxiously await is the (arguably more important) European Central Bank (ECB) meeting on September 6th. The ECB President, Mario Draghi is currently in heated discussions with German policy makers on the best course of action. Originally slated to attend the Jackson Hole meeting on August 31st with Chairman Bernanke, Draghi pulled out at the last minute quoting a “heavy workload” as he gears up to this ECB meeting. During the September meeting, he is expected to outline an ECB plan for new bond purchasing that is aimed at lowering the borrowing costs facing Spain and Italy. Draghi has repeatedly vowed to do “whatever is necessary to ensure price stability” in the Eurozone.
Finally, what about the latest in China? Canada’s economy is so heavily invested in the growth and slowdowns of this country. With a stock market that is so commodity and materials heavy, growth in emerging markets and especially in China is extremely important in keeping our own growth moving. The International Monetary Fund is forecasting real GDP growth of 8% for China in 2012, slowing from 9.2% in 2011 and 10.4% in 2010. While some analysts view this as a major slowdown, it’s important to remember that China’s target for 2012 was 7.5%. Leaders in China know that the 11% growth rate is unsustainable and they are getting levels down to a point that they can control. Chinese policy makers have a HUGE capacity to re-stimulate their economy if they deem it necessary and they’ve proven that they are not afraid to do so. The vast majority of analysts believe that China will not experience a “hard landing” that has been much talked about for the past few months. It appears that the world is willing to make this bet on China as we saw $7.6 billion of foreign direct investments there in July alone!
As the market turmoil continues, investors should focus on the destination that they plan to reach in their retirement goals and not the journey of short-term market returns.
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