While the sizzling summer heatwave continues without abate around the globe, financial temperatures have decreased in the last few days. The US stock market indices, hitting official bear market territory last week, have managed to pull back as the VIX index, the so-called Wall Street’s fear gauge (a measure of the volatility of US stock prices), has retreated as well. Perhaps the most eye-catching development has been the rapid fall in the price of oil, to around $130 from last week’s peak of $147. Yet just one week ago, with bank stocks collapsing, oil prices reaching new peaks, the dollar falling to record levels against the euro and US government-backed mortgage institutions on the way to collapse, the world seemed to be once more going towards financial meltdown. This sudden turnaround, in turns, begs for answering the following questions: 1. What is behind the latest positive mood? 2. Are we finally seeing the beginning of the end of the liquidity cum credit cum financial crisis, as Deutsche Bank CEO Joseph Ackerman stated over the weekend or is the latest relief a temporary phenomenon like a summer rain and even hotter days are ahead for the financial landscape?
The answer to the first question is likely to be helpful in tackling the second, so let’s try to justify the recent positive mood in financial markets. A casual look at the last couple of weeks reveals that there was no major data release or market-mover event after the always-watched
In fact, there are other signs that the storm may finally be passing. While everyone has their own indicator of financial strain, the
However, it is way too early to declare that we are out of the woods. First, house prices are continuing with their downward spiral in the