The recent rise in U.S. and European equity prices seems to be more of a relief rally if fundamental financial and economic data has any bearing on market movements. That is also notwithstanding the influence of high frequency trading which according to a study cited in Bloomberg, "exacerbates moves". According to the Journal of Investment Strategy Midas Opportunity Fund Letter, the global jobless rate is on course to negatively restrict the number of jobs available to a growing population.
Image source: Frits Ahlefeldt
• Census Bureau: August demand for durable goods declined .1%
• Greek bank's leveraged structured finance downgraded by Moody's
• SBT: M&A activity declines 22% in 3Q 2011
In addition to sour employment news, net capital inflow into private equities declined for the four months of April through July 2011; rather and a shift of capital into longer-term Treasuries in June and July occurred. Net capital outflow was $7.4 billion with a larger flight from private equity of $ 44.4 billion not offset by other private investments.
By selling $400 billion short-term government securities and purchasing $400 billion in longer-term securities however, the Federal Reserve Bank intends to lower long-term interest rates. This could stem capital inflow into longer-term securities and encourage a shift into more promising securities such as equity investments. However, that sentiment also depends on what is considered a safe haven for capital, and possibly irrespective of yield.
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