News / Inter Market Analysis
When the year started, the “R” word, or recession, was very much
on the lips and minds of traders.The subprime fiasco had pushed the world’s
biggest economy on the brink of a prolonged and protracted recession that
could lead to a global economic slowdown.
So far, the actual effects were much better than what people had feared.
First quarter GDP numbers were actually higher than what analyst expected
at +.06%.A spate of Fed cuts and other measures to generate liquidity also
helped stop the downslide of the US.
But now, it seems “Inflation” is the newest concern of traders.
With crude prices busted through the US$100 per barrel level,
naturally, a rise in commodity prices followed.We see this in the rising prices
of our national staple food:rice.Actually, other regional economies are also
grappling with rising food prices.
On the local front, we were walloped by the 9.6% inflation rate
numbers, a significant rise compared to the 2.2% inflation rate of March 2007
when the rate bottomed out.
Actually, this is the 14th month of this current cycle for the rate.
Historical trends based on previous inflationary spikes since 1990 have showed
us that major moves in the inflation rate lasts an average of 15 to 18 months.
This would mean that the current cycle still has around two more months
based on historical trends.
The prudent thing to do now is to focus on the drivers pushing
inflation. Any change in the direction of these drivers would ultimately point to
a reversal in the direction of the market in general.
These key drivers would be prices of crude oil and the exchange rate.
Any reversal from the current trend of these drivers could signal a market
reversal. But at this point in time, there are no clear signs of any reversal
on these two drivers. On the other hand,recent comments by Fed Chair
Bernanke expressing concern over rising crude prices is a good start. Note
that the comments led to a decline in crude oil prices.
But in the overall, we would need to see more concrete and
fundamental reasons for us to say a reversal in market is indeed in the works.
|
