This week, on Thursday actually, the US equities market will record its 86 months (and counting) bull rull. The current bull era that started in March 2009 is set to surpass the postwar rally of 1949 to 1956, says George Lucas, Managing Director Instreet Investment.
“The only rally it will trail is the decade-long boom of the 1990s that finished with the dotcom bubble burst in March 2000.
“This is a significant development for all investors. Indeed, we’ve seen bullish sentiment across many asset classes recently, particularly emerging markets and commodities, driven by the US Federal Reserve lowering expectations of interest rate tightening this year.
“The Fed is due to meet this week and market participants will be all over the Fed’s statement for signs it may alter its position. There is no expectation that rates will be changed, but any shift in the Fed’s more cautious stance will provide fuel for the US dollar to rise and may upset the current calm in markets.
The weakness of the US Dollar against the Yen and Euro has helped ease pressure on China’s currency and reduce the risk of a Chinese devaluation, which was a major source of anxiety for global markets at the start of the year. If the US Dollar strengthens and impacts the Renminbi, it could give rise to renewed nervousness.
Markets will also be following the Bank of Japan (BoJ) closely in coming weeks as expectations are high that it will announce further easing measures. Current thinking is that the BoJ may offer negative rates on some loans in an effort to help financial institutions. And in theory, this should sink the Yen.
The weaker Yen saw the exporter-sensitive Nikkei 225 Average (which tends to sport a fairly tight correlation to the Dollar/Yen exchange rate) rise a further 1.2% on Friday. This was its fourth consecutive gain last week, taking it to an 11-week high.
Commodities on the up
Brent crude has risen from a low of $37.27 to a high of $46 this month, which is particularly impressive given the collapse of a proposed production freeze deal among the big oil countries in Doha a week ago. However, for now, oil market supply and demand remain on course to strike a better balance later this year. Of course it’s not just Oil but also the price of iron ore that is on the up. It surged last week to its highest price in 15 months, approaching $70 a tonne.
Investors, however, are reflecting on comments from BHP Billiton’s head of Australian operations that the recent rally in the iron ore price may have run its course.
A final word on Australia
In Australia, a further fall in underlying inflation in the first quarter may increase the chances that the Reserve Bank of Australia cuts interest rates again later this year, especially if the AUD continues to rally.
