Turbulence is likely to continue in global capital markets based on developments at the thirty thousand feet, at the mountain top and ground level in the form of monetary policy, bank stress tests and earnings releases. Inherently contradictory to good management and seamless recovery remains the pining for easy monetary policy to continue while long government bond yields also remain close to lows in the U.S. dollar, the Euro and the Yen. At the thirty thousand feet level, currently is broad based bifurcation. In fast growing Asia, pushback from the populace is growing over inflation, with central banks responding. Unlike the pre May 2010 markets taking robustness for granted, the July semi-annual Fed Monetary Policy report started with reference to unusual conditions. Even as industrial countries overall keep rates low, an array of central banks with differing economic milieus has been raising rates. The financial sector as link to the real economy gives a mountain top view of turbulence not dispelled by July 26 reports of Basel accord for 2018, by July 23 releases of stress tests in European banks with wiggle room on sovereign debt that contrasts with stringent Swiss action as far back as 2008 and by property loans that Chinese bank stress tests attempt to proactively contain.
In a market looking for substance over sizzle, wiggle room in rescheduling recognition affects the perception of quality of bank reporting and specifically to Europe, for the investor favors Swiss over other bank exposure. Albeit improved into the first half of 2010, at the ground level during uncertain global growth and finance, enthusiasm for beating consensus has been muted during earnings releases as the focus had already by May 2010 moved away from governmental largesse sizzle and to the substance of privately generation of revenue. The deluge now from U.S. based releases is forthwith to be joined by European and Asian releases. More than generalized valuation expansion, these characteristics favor a quality of delivery focus over sharp upswings even in our overweight areas like energy and healthcare and favor growth driven by technological change such as in information technology especially in communications.