The global slowdown appears to be bottoming out and we expect a modest recovery in 2013, with an acceleration of growth in the second half of the year. Although deleveraging by households and damaged banking systems continues to hold back many developed economies, the outlook for the Eurozone has improved following the announcement of the ECB's framework to intervene in peripheral bond markets if necessary. Although the bloc has still to turn around its flagging economy, more progress has been made in its adjustment process than is commonly realised. We also think fears over the slowdown in China are overdone, with recent data suggesting a recovery is taking hold

Equity markets have stalled following the central bank driven summer rally. This pause is down to both short-term profit taking ahead of the US election as well as concern over Q3 earnings season in the US, which is shaping up to be the worst since the recession. In our view, the weakness will be short lived and, unless global GDP unexpectedly weakens, earnings should pick up

Most asset classes have delivered strong returns in 2012 as central banks have reduced tail risks, and valuations are less attractive than at the start of the year. However, the relatively benign macro environment remains favourable for stock picking and a post-US election bounce could support US markets through the end of the year. In the Eurozone, assets continue to incorporate a significant sovereign-related risk premium thus remain attractive.

Eoin Treacy's view The above paragraphs rhyme with our view and put some perspective on the short-term nature of most financial commentary. The approach of leadership changes in two of the world's largest economies is a cause for uncertainty and this is currently being priced into markets along with weak earnings and the perception of a slowing global economy.

The S&P 500 has returned to test the region of 1400 which represents a psychological level and the region of the 200-day MA. While the Index has been deteriorating for a month, the decline to date has been relatively modest and the Wall Street Leash Effect has not yet been in evidence in some of the higher growth markets. However, if the S&P's decline speeds up, it would have a knock-on effect for other stock markets, particularly those which are most overextended. The Index will need to firm in this region to offset current potential for an additional test of underlying trading.

The Dollar Index has held a progression of higher major reaction lows since May 2011, within the context of a much larger four and a half year range. It found support near 78.5 in September and is currently testing the upper side of the 1-month range. A downward dynamic would be required to question potential for some additional upside.

US Treasuries continue to range mostly above 145 and have held a progression of lower rally highs since July. It found support this week in the region of the 200-day MA and while there is scope for a further bounce, a sustained move above 150 would be required to question medium-term top formation development.


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