Economic reality finally cracks market fervor

Sun May 26, 2013 3:51pm EDT
 
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By Andy Bruce

LONDON (Reuters) - As evidence mounts that a mid-year slowdown is taking place in the world economy, the next few days will offer a clearer glimpse of how that will impinge on policymaking and buoyant financial markets.

Global stocks stumbled last Thursday in one of the few times the grey economic reality cut through this year's reverie in financial markets.

And that could mark the start of a trend, after Federal Reserve Chairman Ben Bernanke last week hinted the U.S. central bank could soon scale back its monthly bond purchases that have flooded stock markets with new cash.

Some poor business surveys from China have also had an impact, suggesting the world's No.2 economy is struggling for momentum.

While there is little in the way of major economic data this week that will send chills through stock markets as happened on Thursday, there is a renewed sense of caution in the market.

"The underlying momentum in the global economy is weaker than it should be at this point of the economic cycle, five years after the global crisis," said Lena Komileva, director of G+ Economics consultancy in London.

"We have yet to see evidence of a convincing, self-sustained positive feedback loop between real growth and market value inflation."

Hope that market confidence would filter through to the real economy was memorably described as "positive contagion" by European Central Bank President Mario Draghi in January - in hindsight perhaps more in hope than expectation.   Continued...

 
A labourer cleans the window of an office building near a residential complex (back) under construction in Shenyang, Liaoning province May 17, 2013. REUTERS/Stringer