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The risk of a second dip remains high

Anthony Byett

The goldilocks period continues for the global financial markets – the news at the margin is largely positive (the level of activity is not!) while interest rates are very low – and hence up go global share prices, the price of oil and along with them the NZD, including the NZD/GBP passing the same peak reached in 2005 and 2008 (but not the NZD/CAD).

There is one major challenge to this scenario this week – the US government issuing another massive round of debt Tuesday, Wednesday and Thursday – but the lack of other major scheduled financial news suggests the momentum carries the NZD generally higher in the next few days, and maybe weeks.

However it still remains difficult to see the NZD/USD, for instance, remaining above 70c over a period of months.

Background articles of interest …

1) Investor confidence is now high according to the Merrill Lynch monthly survey of global fund managers, the index reaching its highest level since Nov-03 – a warning to all contrarians (and, yes, the S&P 500 did drop in the first half of 2004, by 5%).

2) The challenge ahead: removing the massive US stimulus in place without derailing the economy, and while holding onto your job Yahoo

3) Of a similar theme, former Morgan Stanley Analyst Andy Xie believes we are amidst a pure liquidity bubble, a temporary equilibrium that depends largely on the US and Chinese governments and – as do the IMF – that a sustained recovery requires a rebalancing of US and Chinese savings rates. Some other observations: the Chinese growth rate is slowing right now; liquidity is fueling a rising oil price trend. And forecasts: the US Fed will start raising interest rates within 6 months; asset prices will weaken next year.levitra price

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