Shocking The Markets

A variety of news events combined forces yesterday to pull the major indexes off their lofty levels.

In the mortgage fiasco arena, Bank of America was sued by a consortium of investment firms and the New York Fed to force the bank to buy back mortgage backed securities worth some $47 billion.

This will be just the beginning in an effort to ascertain whether proper due diligence was applied when packaging these securities. Allegations have surfaced that a large percentage of mortgages in those pools should have never been included due to lack of “quality.”
Next, China applied some shock and awe on global markets by announcing that it had raised interest rates. That took the starch out of any remaining upward momentum as the dollar rallied, gold and oil dropped, stocks headed south and bonds rallied higher.

China’s interest hike should not have come as a surprise as their real estate market is in a gigantic bubble, with the economy growing too fast and inflation pressures continuing. Higher rates are now a concern to global economies as Chinese economic growth may now be less as had been anticipated, which in turn will affect global demand for raw materials, construction and equipment.

The good news about the day was that the major averages closed off the lows by a decent margin. Futures indicate that the opening on Wednesday may be to the upside. Time will tell if yesterday was only a one-day correction or if this spells the end of the current uptrend.

The chart above is courtesy of MarketWatch. Please note that the readings for gold, oil and the Global Dow are incorrect due to me accessing this chart at a delayed time from Europe.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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