Markets Are Looking Up Again

It's odd what sometimes just one week can do. Last week, the STI index was at around 3000 points, and many were wondering if it would go lower. Markets are much better this week. The Greece crisis has now stabilised as European Union leaders agreed to launch a fresh bailout package expected to total 120 billion Euros for Greece. The condition is that Greece passes through an austerity package next week, and unless they want to be broke by mid-July, chances are it will be passed through.

The Federal Reserve had a press conference on Wednesday where they reiterated that interest rates will be kept at the current near zero levels for an extended period of time and when asked how long that is, Ben Bernanke specifically said “at least two to three meetings … and I emphasize at least”. Ben Bernanke also repeated their view that they expected inflation to fall.

The calm and confident press conference given by the Federal Reserve has helped to calm markets worried over the pace of the US economic recovery and over potential rising inflation.

In any case, the recent pessimism in markets has also had the effect of driving down oil prices. In addition, the International Energy Agency had announced that its members would release 60 million barrels of petroleum into the market, causing a further drop in oil prices, with the Nymex WTI contract price for oil dropping to 91.02 USD on Thursday. The lower oil prices will be welcomed by Asian countries which are still grappling with rising inflation.

Overall, markets are recovering this week as investors gained much confidence that the world is not headed off into some crisis in one form or another. As I mentioned in my blog entry one week ago, it's important to control your emotions when markets are down, sometimes the best bargains in fact can be found after a bout of bad news had driven the market down. At current levels, and if the concerns remain pretty much the same concerns which have been plaguing us since last year (Europe debt crisis, oil prices and inflation, China tightening and US growth potential slowdown), then I am confident that downside for markets will be limited because valuations are quite cheap at this point. Upside on the other hand, can potentially be quite substantial because we are certainly still in a very cautious mood, so the swing back towards a bullish market sentiment will be a big one.