I find it amazing that at a time when information has never been more accessible, and there has never been so much data to digest, that focus falls on the scrappiest of morsels to move markets.
For example, everyone waits with bated breath to compare and contrast the latest statement from the US Federal Reserve after their meetings, with markets hinged on the subtlest of changes to their rhetoric. Markets have rallied like Roger Federer or sank like the Titanic on single words; just this past Wednesday we saw equities and commodities rally as the statement changed from ‘economic activity is likely to remain weak’ to ‘economic recovery is likely to be moderate’ - a blunderbus of betterment by Fed standards.
As an aside, Ben Bernanke (banana Ben, helicopter Ben, Widow Twankey, choose your weapon - I prefer to call him Sir) learnt the power of his words the hard way. In the first few months of Mr Bernanke’s tenure as Fed Chairman he spoke candidly to Maria Bartiromo (= rather pleasant CNBC pundit) at a Washington dinner. His remarks were subsequently reported a few days later, and stock prices plunged. Mr Bernanke learned a hard but important lesson.
If the Fed’s power seems somewhat unwieldy, it is equally matched by the preposterousness (or prowess, delete as appropriate) of Opec. Like Britney Spears, Roger Federer (that man again) or Lex Luthor, just when you think Opec has lost their power and influence…poom!…they come back with a vengeance. You can gauge when an Opec meeting is on its way, as commentary starts from the various cartel comrades. Which would be fine if a) they all sang off the same Opec hymn sheet or b) if their comments didn’t move markets. But herein lies the problem. The greater the need for Opec to placate the market, the seemingly greater their efforts to be less cohesive and more misleading, as their esoteric interests pull them in different directions.
Back at the chopping block of our burrito, we know natural gas can be moved by certain analysts expressing their market opinion (or even just a soundbite) to the newswires. Unable to access the underlying research to understand their logic, we are left to extract what we can from their quotes (or - more accurately - the journalist’s intepretation of such).
The phenomenon of markets latching on to certain scraps and discarding others, can be explained away to a certain extent. If market sentiment is bullish prior to new information, then investors cannot help but look for the bullish angle to validate their point of view, and vice versa. If data releases are a surprise to consensus, then prices can whipsaw in the opposite direction. Or sometimes we simply see the Kansas City Shuffle.
What all this leads to explain is that markets are unpredictable. But that still doesn’t justify why they focus on certain news flows. It does highlight, however, that a few choice words from a certain sphere of influence (i.e. the Fed, Opec, an analyst, etc) can have much more force than a fact. What got me off on this tangent in the first place was the Nigerian militant group, MEND, who last weekend announced an indefinite end to their ceasefire. And this was the ironic thing: in the past their greatest impact has come from brute force and violence to prove their presence. Admittedly, while they still undertake certain acts of sabotage, they have come to realize that one of the other advantages they have is a different weapon – a weapon called the word.
So this leaves global commodities such as crude oil at historically elevated levels, while volatility is stuck in the mire. The fear is that if an economic recovery stalls, equities and global commodities will pull back, and volatility will rise once again.
When I worked in London, I worked with a older chap who had spent 35 years in financial markets. He was the textbook definition of a curmudgeonly character, finding something to grumble about in absolutely everything. He swam against the tide; he fought for what he believed in, and stubbornly stuck to his guns until his short-term contract went abruptly unrenewed.
For the majority of his tenure, he was criticized and chastized by his peers, as though his decisions were down to his stubborn personality, rather than his intellect. It wasn’t until some time later when I saw the results of his decisions, that it struck me that no wonder he was so darn stubborn; his experience was something that he had constructed like a castle over the previous 35 years, and was something stalwart he had faith in, defended, and attacked from. He had been right in many of his decisions.
