Market falls

Equity markets have dropped by 3% in the last few days, or getting on for 5% if you include today's falls. The catalyst was last Friday's supposedly poor employment report in the USA and the announcement that China had a small trade surplus in March as opposed to the expected deficit. It is hard to believe either of these announcements were of world shattering importance albeit employment is a hot political issue in the US. Generally, most recent economic data has been on the positive side although lacking a bit of oomph. It is also worth noting that equity markets were overbought given the sharp rises in the first quarter of the year.

That said, there are one or two worrying developments. The first is widely predicted re-emergence of the Euro-zone debt crisis, particularly for Spain and Italy. The premium for Spanish 10 year bonds over German bonds peaked at 4.7% in November and then fell to 3.0% six weeks ago. It is now 4.3%. Those investors who thought they were going to make easy money out of LTRO may now be nursing some losses. The second development is the lack of any earnings growth by global companies. Although equity markets were looking cheap at the end of 2011, such arguments are less convincing now.

Although comment on the US employment report can look like a lot of hysterical hot air, it is quite possible that it is a proxy for more serious matters.