MARKETS SPECTATOR: Leadership lacking?

Ahead of Ben Bernanke's semi-annual testimony to Congress, the market's fate rests in the hands of national leaders.

If there is a common theme in stock markets, apart from volatility, it is leadership or the lack thereof.

That may seem ironic, especially in Australia. The airwaves and newsprint are full of speculation as to whether Prime Minister Julia Gillard will be challenged for the leadership of the Australian Labor Party by the man she deposed, Kevin Rudd. Perhaps just as importantly for Australia are questions some now have over the new leadership in China and Japan’s Prime Minister Shinzo Abe’s efforts to stimulate the world’s fourth-largest economy.

But for markets, at least this week, all eyes will be on US Federal Reserve Chairman Ben Bernanke’s semi-annual testimony to Congress on July 17 and 18. The International Monetary Fund has cut its forecast for US growth to 2.7 per cent in 2014 from 3 per cent just after some were reassured that US figures on retail sales and jobs pointed to an economic recovery that was likely to be better than others had thought.

Bernanke must reassure his listeners, if markets are not going to be whiplashed by volatility, that the Fed will not ease QE prematurely until there is evidence of further strength in the labour market and or signs of inflationary pressure, says Morgan Stanley Wealth Strategy strategist Malcolm Wood. Bernanke must also at the same time signal clearly that when QE is eased it will not lead to higher interest rates, Wood says.

Further data later this week from China will show whether the world’s second-largest economy and Australia’s biggest buyer of coal and iron ore is stabilising or whether its manufacturing sector is deteriorating. On Friday, June 14, iron ore imported through the north-east Chinese port city of Tianjin rose for the second consecutive day to $US113.60 a tonne, a gain of $US1.60, or 1.4 per cent.

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