Yesterday the markets waited patiently for Federal Reserve chairman Ben Bernanke to give his prepared speech. This passed without incident, however following further questioning by the committee the possibility of a quantitative easing (QE) policy being brought forward was discussed with a more open mindset. This discussion, along with two of the 12 Fed members voting for the end of QE this year, saw markets wobble.
Arguably, what tipped the markets over the edge was last night’s Chinese manufacturing PMI figures that came in below 50, confirming a contraction in the Chinese economy. These figures were compiled by HSBC and not the Chinese government, and many would argue that they are therefore a little more likely to be accurate.
It would be fair to say that having had such impressive runs over the last month, equity markets are a little toppy; however to call last night’s and this morning’s price action ‘the top’ could be a little premature. Fundamentally the US QE policy is still in place, and it is likely that both the European Central Bank and the Bank of England will become a little more aggressive with their stimulus packages, too.
Investment funds still do not have an equally attractive asset class to invest in and, until they do, equities are likely to remain the home of choice.