Financial markets worry about new downturn

stocks Sept11.pngAn abrupt change of direction is never a pleasant experience in global financial markets. Yet unfortunately, the blog’s regular 6 monthly review suggests this has started to occur since March.

Investors are beginning to fear we may not be be entering a new Supercycle after all. Some are also worrying that high oil prices may be leading to demand destruction.

The blog’s view remains that the ageing of the Western Babyboomers (those born between 1946-70) means we are entering a New Normal era. And there are certainly signs that bond market investors are now starting to accept the argument of Chapter 2 in its Boom, Gloom and the New Normal eBook, that we are following Japan’s model.

This is quite a change. Investors mostly took no notice of the blog’s article in the Financial Times a year ago, which suggested the consensus might be wrong. But as the above chart shows, the US 30 year bond (light green) is up 16% since March, due to the fall in US interest rates.

Germany’s stock market (green) is the biggest loser since March, down 22%. A China slowdown will impact it badly, and investors fear it will have to pay for the costs of Greece’s looming default
• Investors also worry that other emerging economies are slowing. Brazil (pink) is down 14%, Russia (lilac) down 19%, India (orange) down 8% and China (blue-green) down 16%
Japan (purple) is down 15% after the earthquakes and tsunami
• The US (dark blue) and UK (brown) are down 7% and 8%, as recent economic data has disappointed

Even the major investment banks are suddenly becoming cautious. Goldman Sachs has now cut its year-end forecast for the S&P 500 from 1400 to 1250, citing “heightened uncertainty in global equity markets“.

However, its commodities team is still on the bullish tack, forecasting that Brent will rise to $130/bbl over the next 12 months. They believe “emerging-markets demand for key commodities, including oil, is holding up well“.