As a snub to Cassandras, after days of uninterrupted fall, the CAC 40 offered on Thursday, December 18, its best session of the year. Progressing 3.35%, the Paris Stock Exchange signed a dramatic late mad sequence that saw the major European markets lost almost 10% in six meetings, between 8 and 15 December.
That put the balm to the heart of investors before the winter break. From Monday 15 to Friday 20 December the CAC 40 rose 3.23%, while the German Dax took up 2% and the British FTSE 3.88%. Across the Atlantic, where the fall was less pronounced but anxiety still was vivid, the S&P 500 won 3.41% in five sessions and the Nasdaq, the index of technology shares, 2.40%.
This game of rollercoaster eventually makes the head spin, even for the most seasoned observers. “What to say? Everything goes very fast and in all directions,” summed on Friday analysts at Aurel BGC. Tuesday’s session, as such, was revealing: plagued by fears of a collapse of the Russian monetary system, European stock indices lost up more than 1% during the session, before ending the day up more than 2%!
Market observers labeled this dithering, mof “risk on, risk off” in the manner of a child playing with the switch, where revenues plunge in the dark or suddenly return in dazzling light, disorderly and – it must be said – not always justified. This back-and-forth in which the half-measure has no place, hard since the financial crisis. And shows no signs of stopping.
This time, therefore, after days lamenting the parlous state of the global economy, markets dashed to the rise. Gone are fears of political crisis in Greece after the decision of Prime Minister Antonis Samaras to call a presidential election – the first round took place on Wednesday. Forgotten the violent decline of oil, which shook the prospects for expansion of the US oil sector and knocked the Russian economy. Extinct, anxieties markets face a continued deceleration in China and a threatened Eurozone deflation.
Nothing is settled
The entity responsible for this sudden amnesia is the US Federal Reserve (Fed, central bank). Expected at the turn, the president of the institution, Janet Yellen, delivered on Wednesday a chiseled speech, exclusively to calm investor moods. It will be “patient” before starting to raise rates. Traders have translated that it will not do anything on the US monetary front before April 2015. And rushed to relight the light, throwing themselves back hungrily on risky assets (“risk on”) that are listed shares on stock exchange.
Yet nothing is settled. “It seems unrealistic to try to rationalize movements do not always have real justification, in the short term anyway. The only certainty is that volatility is back,” says Aurel BGC. A good analytical impotence admission!
In fact, the reasons for concern have by no means disappeared. European and Chinese economies are still struggling with sluggish growth for some, in sharp slowdown for others. WTI barrel of oil is hovering around $55, when he posted $100 in the heart of summer. Russian monetary troubles are a major destabilizing factor not only for the region but also for the planet. And Greece, the first round of presidential elections did not yield the expected majority in favor of the government candidate, Stavros Dimas. A step closer to the possibility of early parliamentary in January, which markets fantasize about a possible remake of the sovereign debt crisis of 2010-2011.
In this ocean of uncertainty, information brought on Friday was like a ray of sunshine. In France, INSEE reported a rebound stronger than expected growth in the third quarter (+ 0.3%). An increase of 1% of gross domestic product (GDP) in 2015 now seems in hands of the Hexagon. The new market has not ignited, but it had the merit to bring some water to the mill optimistic.
Those repeat it: the drop in oil prices and the decline of the euro will end up giving a breath of fresh air for European companies. The United States have clearly taken the road to recovery. Therefore, there is no reason that global markets do not continue to rise.
That’s the theory. But can anyone say at now how investors will choose to operate the switch next year? One thing is certain: for the markets, 2015 will be rough.