The paradox is resonating on the bad macro news last week from Europe. Europe’s GDP failed to grow generally, the powerhouse of European economy Germany is in negative territory too. The annual growth rate is only one-third of US performance. The real poor performance came out from Italy the third biggest economy in Euro zone.
The immediate market reaction was the lower yields of German bunds and breaking through the 1% level. Equity market has been rallying since that day massively in Europe. Why? The market’s expectation is that ECB will have to begin the monetary stimulus, which will create huge liquidity for the European stock markets. The poor economic performance pushes ECB further to do more and the investors understand that phenomenon. So the paradox is imminent worse for the economy better for the stocks.
The immediate market reaction was the lower yields of German bunds and breaking through the 1% level. Equity market has been rallying since that day massively in Europe. Why? The market’s expectation is that ECB will have to begin the monetary stimulus, which will create huge liquidity for the European stock markets. The poor economic performance pushes ECB further to do more and the investors understand that phenomenon. So the paradox is imminent worse for the economy better for the stocks.
Bad news from Main Street means good news for Wall Street recently. The media discuss about that this paradox as a new feature, but it is not really true. This pattern is not really new that is a long historical symptom when market wants to go one direction. Those days Mr. Market has a selective hearing, ignore the news which against his direction. This phenomenon already mentioned by Dow and Livermore a century back. The market only absorb those news which help moving its direction and could excelarate the right momentum.
The BFM Assets Team.
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