More Uncertainty

Uncertainty undermines confidence.

• The Greek economic crisis will draw the attention of many and decisions on future economic decision making will be postponed until there is further clarity.
• At the moment, both Germany and Greece have backed themselves into their respective corners, so there is limited understanding as to what happens next (although we might expect Germany to soften its stance in an effort to keep the Euro weak).
• At the same time, Chinese equity markets are highly unstable (down 27% since June 12) and while the Chinese government (suspended IPO's) and central bank ( lowered interest rates) are trying to engender stability, it is not clear how this will end.
• US economic data is not bouncing back from it's Q1 downturn as hoped for (yet) and inflation (specifically wage growth) has not turned higher as desired, so many are re-forecasting the next move by the US Federal Reserve (now to December or even early 2016).
• In Canada it has been suggested that the economy has actually slipped into recession (2 consecutive quarters of negative economic growth). 

In times of uncertainty, financial market participants will move from riskier assets to safer assets:

• Good quality bonds (government bonds) will be purchased (for safety) pushing prices higher and yields lower.
• $US will be bought.
• Money will flow into cash.
• Equity assets will be sold, emerging markets sold the most.
• Overly aggressive portfolios will suffer from higher levels of volatility.
• Portfolios with diversity and balance will suffer the least.

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