Back to nervous times

Yesterday's market action as reported by FT:

US and European stocks were hit by a new bout of nerves on Tuesday as economic reports and the minutes of the latest meeting of the US Federal Reserve forced investors to focus on the impact of the subprime mortgage crisis on the wider economy.

The drop in share prices triggered demand for the relative safety of government bonds while risk aversion was evident in the currency markets as the yen gained ground against high-yielding currencies such as sterling and the Australian and New Zealand dollars.

But the economic data yesterday were actually not too bad relative to expectations.

The Conference Board’s confidence index dropped to 105 in August from a downwardly revised 111.9 in August, although analysts had forecast a fall to 104...

Data from S&P/Case Shiller showed a record annual decline in US home prices in the second quarter.

But eurozone data on Tuesday painted a more encouraging picture. The Ifo survey of German business sentiment showed only a dip in the headline index from 106.4 in July to 105.8 in August against expectations of a fall to 105.4.

... Record growth in eurozone money supply last month kept alive inflation fears. Broad M3 money supply growth picked up to 11.7 per cent from 10.9 per cent in June, above analysts’ expectations.

I doubt that markets were particularly focused on the economic data yesterday. Sentiment has turned and the bounce in markets may be over for the time being.