The past few weeks has certainly seen an increase in volatility in the markets. The natural “will they, won’t they” Greek question has caused a lot of uncertainty right across Europe. More than just Greece however, Mark Carney, the Governor of the Bank of England, really set the cat amongst the pigeons when he spoke of an interest rate increase in the very short term. He then re-iterated is comments only a day or so later. GBP has since soared to its highest level against the EUR since 2007.
Then we have other, unrelated issues in the East. The Chinese markets has sold off quite heavily over the past week or more. This lead to a ban on selling – and there were even some reports of a ban on reporting of selling! The fall in the Chinese market should not really have been unexpected… it had increased by more than 50% since March – of 2015! Such a rise is unsustainable. There has to be moment of selling in order to digest gains.
The Chinese economy is simply huge. It dwarfs anything which has gone before it. Did you know that in the 3 years up to the end of 2014, China produced more concrete that the USA did… for the entire of the 20th century? It is simply phenomenal.
If volatility has a friend, their name is most definitely “Uncertainty”. This was shown over the past 3 weekends, whereby the major EUR-cross forex pairs, and most European Indices, and Gold, and Oil, gapped one way or the other upon opening on Sunday night. Everything, at that stage was Greece related – and the ongoing rumour-mill surrounding it.
It turns out that it was all for naught. Prime Minister Tsipras eventually bended at the knee, and did what was asked of him by the European powerhouses. Is this the end of the tale? Hardly likely. Almost immediately after the Greek parliament passed the new bill, both the IMF and other high-ranking European officials questioned whether or not it was even sustainable without some element of debt forgiveness.
This story is set to continue for a while yet. It may be time to fasten the seatbelts.