Following huge losses for the Dow on Monday and further selling in Asia overnight, the markets are watching what the Fed and Ben Bernanke will do at their July Meeting today. Speculation is mounting that the Fed will attempt to restore calm but one fund manager thinks that policy action is unnecessary.
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Federal Reserve Bank Chairman Ben Bernanke
“The markets have become like a spoiled babywho expects daddy Bernanke to rush for help whenever they feel a little bit of pain” Pedro Noronha, a fund manager at Noster Capital in London, told CNBC.com on Monday.
“This correction was long overdue and it is healthy, as it allows assets to pass from weak into stronger hands and to be more fairly priced” said Noronha.
The problem for Noronha is that attempts to stop the market reacting to events via intervention mean the market cannot find its footing.
“It is important that the market learns how to find its own footing again without the constant band aids and quick fix medicines that quickly alleviate the pain but do nothing to solve the issues at hand” said Noronha.
The sell-off witnessed across the world in the last few trading sessionsis a classic secular bear market sell-off according to Chris Watling, the CEO of Longview Economics who thinks another round of quantitative easing is on the cards.
“It reflects how 'financialized' the Western economies have become—and as such how financial markets are unable to stay elevated without plentiful liquidity” Watling said in an interview with CNBC.com.
“Expect more QE to be announced soon by the Fed (and others)—perhaps as early as today. That, if large enough, should begin to start to stabilize financial markets,” he said.
The US will not fall back into recession , according to Watling who is advising clients to sit on the sidelines until things stabilize before a stocks rally into the end of the year.
In the last hour stocks have recovered some poise but remain lower. One analyst believes a lot now depends on what Bernanke does tonight.
"Although it is encouraging to see the recovery in stocks overnight, an awful lot now seems to be riding on the outcome of tonight's FOMC meeting. That is a significant concern” said Simon Derrick, the head of global currency research at Bank of New York Mellon.
