Coming Week Lessons Part 1: Making sense of seemingly contradictory market behavior
The following is a partial summary of the conclusions from the fxempire.com weekly analysts' meeting in which we share thoughts about what's driving major global asset markets. The focus is on global stock indexes as these are the best barometer of overall risk appetite and what drives it, and thus of what's moving forex, commodities, and bond markets.
Here's part 1 of our lessons for the coming week. We added some extra forex notes here.
It's no surprise or news that economic reports believed to most influence Fed QE taper timing are the prime driver of global risk appetite as portrayed by its most popular barometer, the leading international stock indexes.
As we detailed here, global stocks and other risk asset markets spent Monday - Thursday falling on positive indicators about the Friday US monthly jobs reports, or rising (actually just cutting losses a bit) on the one negative report, the disappointing ISM services PMI report on Wednesday.
Good news was ultimately bad news, because good news heralded the end of the only thing that markets believe is sustaining the rally, QE 3 and its variants. A common phenomenon.
Then on Friday these fears were realized: the actual jobs reports were very positive all around. Yet after a weak of diving on the rumor, instead of selling off, markets rallied on the very thing that they feared.
Huh?
After spending the week fearing (and selling off on) good data that fed early QE taper fears, European and US traders embraced it.
Why?
There were three interpretations floating around:
- Data Was Good, But Not Too Good To Advance The Taper
One, as we've noted repeatedly, the most bullish results are those that are good enough to indicate continued slow growth, but not
