The Mystery of Global Stock Markets

Every day we read online or in the financial pages why stock markets go up or go down.

The problem is, most of the time what we read isn’t reliably correct.

The behavior of today’s world equity markets is a very good example proving that point.

Good Economic News – Down Stock Markets!

Despite two very positive pieces of economic news today, the world markets are mysteriously down.

Today’s good economic news is this:

  • Christmas sales were unexpectedly 14.8% higher in last-minute shopping than last year
  • The Fed announced a move to reduce home mortgage foreclosures

The Fed announcement is even big news in Europe. I first read about it in London’s Financial Times. That news should have had a positive effect on European and American markets.

In addition to that, there really wasn’t any especially bad economic news to spook the markets.

Normally, that would be cause for celebration. We’d see a bullish jump in world markets. But that isn’t what happened.

World markets today acted strangely, indeed!

Is Germany to Blame?

World Equity Markets - 12/27/2011 (Source: Financial Times)

Whatever happened has something to do with Germany’s DAX market. The DAX started the day down nearly -1% but then rebounded early to go flat.

England’s FTSE 100 started higher. At one point the FTSE was up +1%. That is a good day by any standard of measurement.

Then just before the New York markets opened, for reason’s unknown, the DAX started falling like a rock… all the way down to -2%!

It took down the Dow, S&P and FTSE with it!

Why??

Conclusions

Watch world stocks for any length of time and the only constant you’ll discover is that, over the course of most days, all the world’s markets go up and down in near lockstep with each other.

Their behavior is only loosely coupled to the economic news of the day.

Day after day, you can read CNNMoney‘s explanations why the Dow, S&P and NASDAQ went up or down when you can plainly see that they are just reacting to DAX and FTSE trending at the open.

Often the news CNNMoney credits for up and down moves didn’t even come out until AFTER the market went up or down at the opening.

Sometimes, like today, the markets are just odd. They seem to move up or down in a nonsensical way.

There was a sale of Italian and Spanish short-term government bonds today to fund their sovereign debt… maybe that didn’t go as well as Germany expected.

Just last week the ECB poured €440 billion euro ($678 billion U.S.) into European banks at 1% interest. That should make snapping up Italian and Spanish sovereign debt very attractive.

Its easy pickings for banks flush with new, cheap money. Italian and Spanish bonds ought to sell like hot cakes!

Maybe the DAX thought demand should have been higher. Maybe nothing at all happened.

Its all wrapped up in the unfathomable mystery that shrouds global equity markets.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Dec 28, 2011, in Bonds, DOW, economics, Economy, EU, Global Economy, Global Stock Markets, news, Politics, Stock Market. Bookmark the permalink. Leave a comment.

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