The Best Place to Focus Economic Efforts

Market Trends - 02/09/2015

Conditions in the world economy are uneasy. The differences between real developments like fundamental data and the broad, frenzied and hastily-applied financial policies common in world economies are becoming wider by the day. Exemplified well by the current situation is the oil sector, which reacts explosively to even the smallest change in sentiment. The baseline issues plaguing economies like China are only remedied in the very short term with easing measures like the devaluation of currency. Though the sentiment driving the financial economy is currently taking a front seat to the actual economy, it can work both ways. Investors know that no matter how beautiful the coat of paint on a struggling economy, the core is still rotten. Buy into the newly-installed easing measures and sell when the nigh inescapable weakness is realized days, and in some cases, hours later. Deep-seated issues like debt and unemployment will not be aided by measures meant to temporarily balance equity markets, and the market gets closer and closer to the underlying truth with each passing day, with indices dropping swiftly despite no overtly negative news.

The Federal Reserve in the US in particular seems concerned about the state of equities above all else, though Janet Yellen has warned of unsustainable stock valuations amid missed targets regarding inflation and other important core metrics. The ADP private payrolls numbers released today settled meekly onto the market, with no significant wake to speak of. Market participants are waiting to react to the more-important Nonfarm Payrolls report due on Friday. Previous estimates of 173,000 and 257,000, the low and high ends respectively, are anticipated to be adjusted lower after the muted ADP report today. Though the expectation of unemployment dropping to 5.20% is a positive revelation, the truth is that the core labor statistic has not been revived as much as indicated. The Federal Reserve seems intent on controlling speculation before turning to the recovery of actual drivers of prosperity like money creation and debt. Friday’s number has a strong propensity move financial markets as any positivity will ultimately be reflected in an increased probability of a September or October rate hike.


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