Risk Appetite Pulls Back Once Again but When Will the Bull Trend behind Currencies and Equities Finally Break?

Risk appetite has turned into another tentative reversal. These brief periods of tempered sentiment set within a more consistent and heady rise in optimism has been the normal pace the since the middle of July. So, the question we have to ask ourselves is whether the pull back over the past week is just another instance where the market is catching its breath before forging ahead or the makings of a meaningful and certain turn in risk appetite. The fundamentals that have developed over the months have increasingly supported an approach of caution as the outlook for growth has been deemed feeble and the prognosis for competitive yields in turn rendered bleak. Nonetheless, speculation doesn’t have to follow the lines of rationality and the natural stream of capital from the financial sidelines can continually feed the draw of capital gains. The appeal of buying into trends that are still young and selling later down the line clearly has its appeal for those that are looking to get back into the market and/or lost a significant percentage of their wealth during the 2007-2009 financial crisis. This is perhaps the most accurate rational for the steady trends the currency, equity and other capital markets that have sported since the definable turn in risk appetite back in February/March. However, this trend will not last forever; and the current pull back is putting the bull phase’s stability to the test once again. In the past week, we have seen both the dollar and yen make sharp but measured gains against high yielders. For confirmation, the Dow is the midst of its of its deepest correction since early July.