Saga of Financial Markets


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What is ahead after Summer of 2013?

August is a month where financial markets are typically characterised by low volume and patchy liquidity as most traders would be on summer holidays.  For this year, there is a long list of uncertainties ahead as the summer comes to an end.  As such, it may be wise to start preparing for a tricky times ahead.

Meanwhile, according to TrimTabs, for the first 12 trading days of August, withdrawal from bond funds surpassed $14.8 billion that was pulled out in all of July.  Investors have taken $103.5 billion from bond funds since the start of June.  There is a concern that “the Fed is starting to lose control of the bond market, which is not good news for the stock market or the highly leveraged US economy”.

Further to that, here are some list of uncertainties highlighted by Mohamed El-Erian, Chief Executive and Co-Chief Investment Officer of PIMCO:

  1. In the US, the Fed is expected to signal at its September policy meeting its appetite for tapering its exceptional support for markets and the economy.  Further to that, it may also bring news of the next Chairman of the Federal Reserve as Ben Bernanke is expected to step down in January next year, at the end of his second term.  Then there is America’s highly polarised Congress. When they return from their summer recess, lawmakers will be unable to avoid for long two important pieces of legislation: the immediate one required for the continued functioning of the government; and that needed to avoid a technical sovereign default a few months down the road.
  2. In Eurozone, September will be the month for the German’s elections which would have implications to the four legs of a robust eurozone – supplementing monetary union with closer fiscal, banking and political integration.
  3. In Japan, delays in unveiling the “third policy arrow” are undermining the policy pivot implemented by the Bank of Japan at the behest of Prime Minister Shinzo Abe. Judging from the recent sell-off in Japanese equities and the behaviour of the currency, markets are already signalling that Japan’s policy experiment will falter if exceptional monetary and fiscal stimulus is not accompanied quickly by structural reforms.
  4. For the emerging markets, G20 Summit in Russia will be held in September and the early-October IMF/World Bank annual meetings in Washington.
  5. In Middle East, the regional effects of the tragic civil war in Syria are now amplified by developments in Egypt…

All in all, the stock market could be particularly tricky in the next few months.


  1. Financial Times, Mohamed El-Erian, 2013-08-21, “Prepare Now for Tricky Times Ahead”
  2. Reuters, 2013-08-19, “Bond Funds have $19.7 bln Outflow so Far in August – TrimTabs”