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Although the reaction to last week’s FOMC comments has been more measured than that on 22 May, the ’buy on the dip‘ mentality that has been so prevalent to date this year has failed to materialise. Trading floors are now assessing whether this is a change in dynamics for the market and the long bull run is at an end. The thin volumes that equity markets have been trading under for the last month highlight the uncertainty, and although traders might be feeling flustered they are not worried enough to be shorting the markets in any great size.
Europe has one or two issues that are just beginning to bubble up again, and the re-emergence of the Greek question in the EU psyche, having long been pushed to the back of the mind, is worrying. A broader issue is the bond market and the increasing yield levels for sovereign debt. However, no-one is yet testing the 7% level, an area which would necessitate assistance by way of a bailout from both the European Central Bank and the International Monetary Fund. Portugal, Spain, Slovenia and Italy will be the countries most closely monitored.
With George Osborne due to announce the areas of government spending that will bear the brunt of its £11.5 billion cost-cutting plans, traders will be watching closely to assess which sectors and businesses will feel the most pain.