Tags: markets | roil | Harper | Hailer

Experts: Markets to Roil For the Rest of the Year

Thursday, 27 Sep 2012 08:10 AM

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Markets will churn for the rest of the year, with sell-offs and volatile swings defining trading sessions from now going forward, experts say.

Stocks rallied over the summer in anticipation of central bank stimulus measures in the United States, Europe and Asia.

Now that such monetary stimulus policies are under way and the wait is over, stocks will roil as investors debate their effectiveness on top of economic and political uncertainty gripping the planet, especially in crisis-wracked Europe.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

“The honeymoon period for markets is over. There is a realization that central banks have laid their cards on the table now and not much more can be done to help growth,” said Justin Harper, market strategist at IG Markets in Singapore, according to CNBC.

“Looking at the hard cold facts, economies globally are still struggling to recover. While markets remain toppy, more sell-offs could be on the cards as investors fail to find a new catalyst to drive equities higher.”

Protests are breaking out in the streets of Spain and Greece ahead of unpopular austerity measures set to take effect, while in the United States, tax cuts expire at the end of this year at the same time automatic cuts to public spending kick in, a combination known as a fiscal cliff that could send the world’s largest economy sliding into a recession if left unchecked by Congress.

“What we’re seeing is a bit of (negative) headline news and volatility is back in the marketplace,” John Hailer, CEO of Natixis Global Asset Management in Boston, told CNBC.

“The truth is that we have our own problems in the U.S. — we still don’t see jobs growth. So, without jobs growth, with the issues in Europe and the Chinese economy, we have a bunch of things happening that are forcing volatility back into the market.”

In Europe, uncertainty surrounding Spain and its much-anticipated plans to request a sovereign bailout are rocking stocks particularly hard.

The large European economy recently secured rescue financing to prop up its banking sector though the country itself is said to be in need of a lifeline.

“There’s a huge amount of nervousness,” said Gerry Davies, a London currency analyst for ForexLive, according to CNNMoney.

“Spain needs a bailout, but they’re trying to hold off asking for one, because they’re worried about the conditionality of any bailout.”

The United States saw more clouds build on its horizon after a key monetary policy figure criticized the Federal Reserve’s recent decision to roll out a third round of quantitative easing, under which the U.S. central bank will buy $40 billion in mortgage-backed securities a month from banks, pumping the economy full of liquidity in a way that pushes down interest rates across the economy to encourage investing and hiring.

Federal Reserve Bank of Philadelphia President Charles Plosser, a noted inflation hawk, said the move won’t work since households and businesses would rather pay down debts instead of take on new leverage.

“In my view, we are unlikely to see much benefit to growth or to employment from further asset purchases. If I am right, then conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility,” Plosser said in a speech earlier this week, according to prepared remarks from his presentation.

“This is quite costly: If the public loses confidence in the central bank, our ability to set effective monetary policy in the future will be harmed and households and businesses will feel the consequences.”

Plosser’s words rocked markets, as investors questioned the effectiveness of Fed stimulus policies.

“So many investors have bought into the illusion,” said Jack Ablin, chief investment officer Harris Private Bank, according to The Associated Press.

“And it was like Plosser pulled up the curtain on the Wizard of Oz.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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