Happy New Year !

Global equity markets start the year with a bumper rally. Kick started by a 100 point rally on Wall Street yesterday, the Far East equity exchanges also saw gains with the Hang Seng gaining almost 150 points (0.59 %) and the Nikkei 225 170 points (1.65%); Historically, traders believe that any rally at the start of the year should set the tone for the rest of the year. That is likely to hold true, but maybe only for the first quarter as austerity measures are likely to bite in a few months time in certain Western countries.

Divergence between some global economies is likely to be the headline theme for most of the year. The problem is, which economies are going to prosper and which will suffer ?

It is fair to say that the German economy is likely to continue to diverge from (outperform) other European economies, particularly the Mediterranean ones (excluding France). Also Far Eastern economies are likely to outperform Western economies for most of the year.

With many commodities finishing the year on their highs, continuing gains are likely for the first few months of 2011, partly spurred by the threat of inflation. Government bonds should also continue their downward spiral as higher interest rates loom.

So the trends seen in Q4 2010 should continue throughout Q1 2011; however the moment Western interest rates increase, pressure will exert itself on the debt ridden consumer which may well dampen the corporate led recovery we have seen in the last few months.

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About Simon Brown
Simon Brown has over 20 years experience trading Derivatives on everything from Gold, FTSE to Dollar/Pound. Simon has lectured in Trading Psychology, Strategy and Technical Analysis, in addition to regular appearances on CNBC television. He is now Managing Director of ProSpreads.

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