Asian markets traded mixed overnight on lingering issues about the auto sector thanks to the fallout from the Volkswagen (VLKAY) scandal, a dismal Chinese PMI number Wednesday, global GDP growth concerns and, of course, the Fed saga that continues to weigh heavily on global bourses.
In addition, Fed chief Janet Yellen speaks later today, and investors the world over will be carefully listening for clues as to whether the Fed will raise rates in October. Yes, we are back to Fed watch, yet again.
News from across the pond has also been a mixed bag of late, but with a slightly positive tilt, which could give U.S. markets a slight breather today after mostly flatlining yesterday. However, a tightening here at home combined with slower growth in China could definitely mean torrid times ahead for global stock markets, and that is the biggest issue facing investors now.
I continue to believe (as I have for almost a year, when the rate hike chatter first started) that conditions globally do not warrant a rate hike in the U.S. However, if the Fed is determined to raise, I say they should go ahead and do it and get it over with once and for all, thereby removing one major overhang that is plaguing global markets at present.
A 25 basis point rate hike will not do a whole lot, except maybe from a psychological point of view. The so-called "one and done" scenario could be the best one that the Fed could consider, if they insist on hiking. I am not sure whether they have the foresight or the ability enough to do that given their dismal record so far.
Germany's IFO survey numbers have just checked in at 108.5, which is above expectations, and that has popped the DAX for the moment. It should be noted that the effects of the Volkswagen scandal is not yet reflected in the latest IFO data given that the news broke this week. Despite that scandal, the IFO economists say that the China slowdown has not affected German exports and that the German economy looks robust.
On the flip side, the European Central Bank's Erkki Liikanen, Governor of the Bank of Finland, is saying this morning that slower global growth presents a risk to the eurozone, and that slower growth within the EC could present serious challenges to monetary policy with the European community. Liikanen adds that monetary policy within the EZ/EC can be increased by changes to the scale, length of time or duration or composition of current stimulus.
So, in a confusing global monetary policy environment with widely differing statements from the Federal Reserve on one hand and from the rest of the world's central banks heads on the other, investors can do two things: sit tight and wait till things have shaken out, or continue to chip away at beaten-down stocks (whether in tech, biotech or any other sector where you generally invest).
Remember, just as they don't ring a bell at the top, they don't ring one at the bottom either.