No doubt about it, the shift in sentiment is real. The market has had every chance to take a dive, and it simply won’t do it. At this point, it is going to take some bad economic news, war between Iran and Israel, or oil prices rising dramatically to shake out the market. Even Europe seems to be putting a lid on the worries there.
The euro zone may raise the combined lending power of its bailout funds to close to 700 billion euros from 500 billion in a trade-off between German opposition to committing more money and calming markets, euro zone officials said.
Then again, maybe all it will take is the market believing China is falling down on its job to underpin the global economy. Maybe, the market will start thinking China’s recent slowing in growth is a bad thing, when, in reality, it is exactly what the Chinese government has been engineering for some time now to control inflation, and it seems to be working.
China’s annual rate of inflation cooled to 3.2 percent in February, bringing it below the government’s 4 percent target for the first time in more than a year.
The other problem in China the market can glom onto is the inflated real estate bubble, the bubble that for some time many have predicted will break, and yet it has not.
Premier Wen Jiabao said on Wednesday home prices were still far above a reasonable level and he would keep property tightening measures place in 2012.
This too seems to be working. In a manner quite the opposite of what happened in the recent US real estate bubble, China seems to rolling back housing prices gradually and in small increments.
In month-on-month terms, home prices fell 0.1 percent on average in the cities, the fifth consecutive decline in the history of the index. It dropped 0.2 percent in January from a month earlier.
Inflation and the housing bubble appear to be under control, but what about China’s growth? Will the steady decline from the 9% range down to the 8% range break the global economy?
Economists expect China’s annual economic growth to slow to close to 8 percent in the first three months of 2012, down from 8.9 percent in the last quarter of 2011. That would be the fifth successive quarter of slower growth and leave China on track to end the year with its weakest expansion in a decade.
China’s growth decline dramatically hurting the global economy is less likely given that Europe is showing signs of economic improvement. The predicted “harsh” recession is now labeled as mild, and with confidence returning on all fronts, it is likely the economy there will turn up before the year is out. The US contribution speaks for itself as its recent economic indicators point to momentum in the economy.
The potential fly in the ointment for the market are commodity prices, particularly oil. If Iran gets stupid, or if Israel decides to attack Iran, or if speculators believe either will happen, then inflation in China could roar back, as it will everywhere else, and if that happens, well, the market just might decide the whole ball of string will unwind. Short of that, it looks like the market still wants to go higher, aside from any near-term correction, that is.
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