Short-term positive, but long-term negative?
LAST week's column pointed out that China's influence on global equity sentiment appeared to be waning. Volatility was easing and traders should stick to the Straits Times Index (STI) because although the longer-term economic outlook is not good with central banks running on empty, there was nonetheless a tradeable bounce to play.
Even so, the STI's 7 per cent rise over the week would probably have caught most by surprise, though its outperformance, which came partly after a reserve ratio cut in China, makes sense when you consider that the STI had been one of the worst performers in the region over the past couple of years, and that when a short squeeze hits, the snapback can be very violent.
The US Federal Open Market Committee next meets over March 15-16, which is about a week away. Although it's likely that a market preoccupied with the short term will not focus on it this week, you'd have to ask, if market instability was what led the Fed to halt its rate hikes, then since markets have stabilised (at least over the past 10 days or so), does this suggest the rate hiking cycle that started in December 2015 will resume soon?
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