RPT-GLOBAL MARKETS WEEKAHEAD-Just blowing the froth off?

(Repeats Friday piece without changes)

By Jeremy Gaunt, European Investment Correspondent

LONDON, Jan 29 (BestGrowthStock) – January has been the worst month
for stock investors since February last year just before markets
took off on a stellar risk rally.

The question is: Could this be a good thing, just skimming
off a bit of froth? Or is it a precursor to something deeper and
less temporary? The answer depends on whether stuttering
economic recovery, sovereign debt woes and central bank plans
for liquidity withdrawal become serious game-changers.

Evidence one way or the other will be on display again in
the coming week with key economic data, including U.S. jobs, and
central bank meetings in the euro zone, Britain, Norway, and

With world stocks heading for a monthly loss of more than 3
percent and emerging market shares dropping more than 5 percent,
investors have certainly been on the back foot.

But overall these kinds of percentages hardly amount to a
serious correction. So far, they are more of an adjustment, the
kind of thing many professional investors see as a necessary
evil that reins in exuberance.

Charlie Morris, head of absolute returns at HSBC Global
Asset Management, is among them, reckoning equities were
overbought after a rally that took world stocks (MIWD00000PUS: )
up nearly 80 percent from trough to peak in less than a year.

“Having a bit of fear out there is healthly,” he said.

There is also evidence that, athough investors have been
stepping back from stocks, they have not been panicking.

Reuters polls of leading global investors this week showed
they had cut back on equities in January.

But they also eased back on their safer bond and cash
holdings, most likely in favour of alternative assets such as
property, commodities and hedge funds. [ID:nLDE60R1JK]

Fund tracker EPFR Global’s latest weekly data, meanwhile,
shows that while investor outflows from various equity groupings
hit multi-week highs, a lot of it flowed into emerging market
bonds, which are part of the risk trade.

“And the fact that investors pulled another $10 billion out
of money market funds, bringing the year to date total to $70.1
billion, suggests that the appetite for more risk and greater
returns is far from dead,” EPFR said.


All this is the argument for it being a “healthy”,
froth-removing excercise. But the headwinds buffeting global
investors should not be underestimated.

Take the fear of the impact of central banks withdrawing
liquidity. It is the liquidity pumped into the system, after
all, that triggered much of the risk rally in the first place.

Investors have already reacted sharply to China’s
tightening, even to the extent that the implementation of
previously announced moves caused a risk aversion shudder this
week. [ID:nLDE60Q21F]

The coming week sees a number of policymaking meetings,
including at the European Central Bank, Bank of England, Reserve
Bank of Australia and Norges Bank.

Both Australia and Norway have already begun raising rates
and the former could so do again, to 4 percent.

The ECB is expected to keep rates unchanged, but attention
will be paid closely for any signs of support for hawkish
Governing Council member Axel Weber’s view that the bank could
remove more of its crisis support in coming months and will not
set interest rates to suit the euro zone’s troubled members.

Greece, Portugal, Spain and Ireland will all remain in the
spotlight with increasing talk about a European Union bailout
for the former. Some believe such a move could undermine euro
assets by implying a move away from demanding fiscal discipline.

The BoE story may be even more direct, however, with the
bank expected to call a halt to its 200 billion pound ($325.4
billion) liquidity-creating programme of buying back old bonds
as quick as it issues new ones.

How much the BoE has kept gilt yields down with its buying
will become clear fairly soon.


When it comes to the global economy, investors can be
excused if they are somewhat confused.

Data on Friday, for example, showed the U.S. economy growing
at the fastest rate in six years, with businesses stepping up
spending. This kind of thing drives up the dollar, hits bonds
and generally weakens low-yielding assets around the world.

But December’s jobs report was very disappointing for anyone
wanting signs of a consumer rebound. Economists at ING note that
since then initial jobless claims have all pointed to no change
in January.

So investors could be bookended by a robust economic reading
on one Friday and a limp one on another.

In the meantime, the coming week will see a raft of
maufacturing and services data with both the U.S. and euro zone
economies expected to see some improvement.

(To read Reuters Global Investing Blog click on
http://blogs.reuters.com/globalinvesting; for the MacroScope
Blog click on http://blogs.reuters.com/macroscope; for Hedge
Hub click on http://blogs.reuters.com/hedgehub)

Growth Stock
(Editing by Susan Fenton)

RPT-GLOBAL MARKETS WEEKAHEAD-Just blowing the froth off?