After one of the wildest spates of volatility that the global markets have seen in nearly two decades, the global markets are more subdued to close out the week, choosing instead to await the Federal Reserve Open Market Committee’s decision on whether or not to move benchmark interest rates at their monthly meeting next week.
How the global economy is currently functioning, and what this foretells of our economic future, remains just as muddled as ever while analysts’ and economists’ opinions are likewise divided about how to proceed.
If there’s one thing that seems certain, it’s that we will have even less clarity in the coming days, with no improvement to our focal acuity, so to speak, until after the FOMC’s two-day meeting on Wednesday and Thursday.
All Quiet on the Front Lines
Global stocks slipped slightly into the red on Friday along with the precious metals. U.S. indices did turn just barely positive during afternoon trading, while the Shanghai Composite similarly gained a paltry 0.07% overnight, virtually flat. European shares traded nearly 1% lower on most of the continent’s major stock markets.
Traders may be shying away from equities amid the uncertainty surrounding the Fed’s momentous decision about raising the federal funds rate next week. The average American is also not particularly hot on putting their money into risk assets: consumer sentiment hit a one-year low to close out the first full trading week of September.
On whole, markets have been stagnant after enduring a prolonged period of volatility. Economic data mirrored this flat-lining: producer prices (i.e. wholesale prices) were unchanged last month as core inflation has hardly registered at all.
Naturally, some of the biggest names in investing are indicating that, after a considerable pullback for the stock markets, there is plenty of value to be found in equities—as well as commodities, whose prices have plunged over the last year or more amid the deflationary trend across the globe. Renowned hedge fund manager David Tepper recently came out as bullish on stocks, but has since qualified this optimism by suggesting it may be a good time to cut your exposure to stocks. Some have characterized his highly-publicized comments as a ploy to move asset prices lower so he can scoop up shares for even better prices. Even as Tepper expressed expectations for a further correction of the markets (current prices dropping 10% or more), he hedged these statements with the tranquil characterization of such a correction as natural, and nothing new.
At the same time, three billionaire titans of the investing world—Marc Faber, George Soros, and Carl Icahn—are starting to open big bets on a rebound for commodities. With most raw commodities seeming to hit their rock bottoms, following crude oil prices lower, it stands to reason that it would be a good buying opportunity for value-oriented investors. Goldman Sachs, however, has called for global oil prices to sink as far as $20 per barrel. WTI crude and Brent crude sat at $45.20/bbl and $48.65/bbl, respectively, on Friday afternoon.
Indeed, the precious metals may represent a particularly good value for investors (both large and small) seeking to balance their risk exposure. Many expect the upcoming wedding and festival season in India to be a strong gold-buying event. Chinese demand for gold jewelry also looks to rise with the current drop in prices. Spot gold fell by 0.6%, or about $7 per ounce, to $1,105/oz on Friday afternoon, just above a fresh 4-week low.
Besides India and China, bullion buyers around the globe are also responding to lower metal prices. American Silver Eagle coins, the strongest measure of retail bullion demand in the U.S., have been selling at a rapid pace, and are still on track to best last year’s record-setting sales totals of nearly 45 million ounces of silver.
Moreover, the global markets may remain shaky until China stabilizes its markets and more clearly defines its economic strategy. As per the IMF’s prescriptions, the People’s Bank of China is attempting to bring domestic and offshore valuations of the yuan into balance in order to strengthen the currency’s case as a major player on the international stage.
Aside from China, the outlook for central banks elsewhere in the world is hardly well-defined, either. Even as the Fed and Bank of England move toward tightening policy, some leading economists like Noble laureate Paul Krugman are insisting that more inflationary measures are what the world needs, further confusing the situation. In any case, traders and investors will know more when Fed Chair Yellen speaks on Thursday at the conclusion of the committee’s two-day policy meeting.