Markets have had a few second thoughts, as they realise the real economies are not recovering as quickly or as well as hoped. There are some green shoots, as the money from quantitative easing finds its way into riskier assets. Yet underneath the occasional favourable figure there remains falling output and restricted credit in many sectors.
Commodities have rushed up on speculative moves and some Chinese restocking ahead of any upturn in use. Rates of decline may have reduced, as the most violent part of the stock cycle passes. The stronger US banks have repaid money they took in the US government bail outs. There is a palpable air of relief that no major bank in the US or UK is now thought to be in immediate trouble.
We have been thinking about the longer term reality of slower growth in both the US and UK, the continuing problems within the Euro zone, and the impact of the need to repay more debt in the West. On the continent of Europe there remain worries about some bad loans and banking assets, as there has been less open discussion. The Baltic republics are under great strain. The Euro itself is making life very difficult for countries that have not controlled their costs and are now less competitive at the common currency rate. Meanwhile, even Germany remains in recession, thanks to the slower pace of cutting interest rates and the tighter monetary policy being followed.
The UK and US have had shallower downturns than the big exporting nations so far, and have taken more monetary action to try to bring recessions to an end earlier. However, both the US and UK have in the process expanded their public deficits dramatically, and have large balance of payments deficits as well. Both are allowing currency depreciation to help price their companies back into world markets. Both will need to take action sometime to rein in their public spending levels before the debt levels impose too much strain on bond markets. Both have seen bond rates rise despite substantial quantitative easing.
We have allowed cash levels to rise a bit to reflect the sharp increase in share values and the new air of hesitation in markets. It is going to take some better news on recovery to help the monetary easing fuel another substantial move ahead.