The Markets

Robert Burns, father of fourteen and writer of Auld Lang Syne, once said, “There is no such uncertainty as a sure thing.” Was he ever right!

Here are a few sure things:

• The Federal Reserve intends to reduce economic stimulus by tapering quantitative easing (QE).
• Gross Domestic Product (GDP) growth was positive in Europe during the second quarter.
• Federal Reserve Chairman Ben Bernanke plans to retire.

 Here are some of the uncertainties which may arise from them:

• When will QE begin to end? How will changes in the program affect world economies and markets?
• Was the second quarter a turning point for the Euro area economy? Is Europe moving out of recession?
• Who will be the new Fed chairman? What policies will be pursued?

How has uncertainty affected things? Well, it has left U.K. & U.S. bond market a whole lot less popular than they once were. China and Japan reduced their holdings of U.S. Treasuries by about $40 billion recently. According to Reuters, a Chinese economist said the sale of Treasuries could be attributed to expectations that bond yields will rise and prices will fall as QE ends. In the same article, a Japanese policymaker said expectations about changing Fed policies created market volatility that forced some Asian central banks to defend their currencies and that led to the sale of Treasuries. In total, about $67 billion of foreign investment money was pulled out of Treasuries in June.

Uncertainty didn’t do much for U.K. or U.S. stock markets, either. At the end of last week, most major U.K. & U.S. stock markets had moved lower, although Japan and the Far East showed good growth – good ‘old asset allocation working for you.