An augur’s lot is not a happy one
In ancient Rome, augurs perceived the will of the gods by studying the behaviour of birds in flight. Today’s divinations generally come from observing the shape-changing stock markets. Are they bearish, bullish, bear-bullish or a bull-bearish? Let’s have a look at these strange beasts.
Led by short sellers covering their bets before the bank holiday weekend, London’s FTSE 250 rose 2.16 percent on Friday, following a strong rally in New York on less-bad-than-expected news about US employment and the dollar’s rebound from a 26 year low against the pound.
Hit first by the subprime mortgage crisis, the US Federal Reserve led the way in interest rate reduction, down from 5.25 to 2 percent. Britain was among the first to be rocked by the subprime ripples, and was particularly hard hit by dollar devaluation.
The Bank of England is constrained from following the example of the Federal Reserve, however, because the truth about surging inflation can no longer be concealed by the Brown regime’s statistical sleight-of-hand.
Meanwhile, the European Commissions’ ‘Economic Sentiment’ index for April fell to 97.1, from 99.6 in March, amid growing signs that Eurozone’s labour markets were registering the effects of the economic downturn.
Results within the Eurozone varied wildly. Economic confidence in Spain, facing an even more severe house price correction than can be expected in Britain, was the lowest since 1993, while sentiment in France and Germany was only moderately moody.
Eurozone inflation figures fell from an annual rate of 3.6 percent in March to 3.3 percent in April, but the European Central Bank (ECB) does not foresee it falling to its target of below 2 percent during 2009. Hence, no cut in the ECB’s 4 percent interest rate can be expected in the near future.
Just one of those swings
Stock markets are harbingers of economic trends. They are traditionally more volatile in bear than in bull mode, and the recent upward trend may be just one of those swings. On the other hand, it may be a justified correction after many months of over-anticipating bad news.
We can’t see any reason for the FTSE to be tracking the Dow right now, as neither the British nor the Eurozone countries are in a position to match the Fed’s interest rate machete-swinging. Nor is it by any means a given that the US economy has turned the corner.
While fear of a US financial meltdown à la 1929 has receded, the recession may well go deeper and last longer than expected. Worth remembering, perhaps, that then Federal Reserve Chairman Alan Greenspan coined the phrase ‘irrational exuberance’ as long ago as 1996.
(This article draws on reports in the FT, WSJ, Business Week, and from Reuters)
