"Economic information from China and Japan over the last couple of days helped maintain the impression of stabilization in Asia. Even though Italian industrial production numbers offered further evidence the euro zone’s recovery will be sluggish, on balance this all provides a positive backdrop for markets. One question weighing on policy makers’ minds, however, is whether the highly accommodative monetary policies of the past year are starting to overheat certain asset markets. There is little sign of consumer inflation in the world’s biggest economies, but housing markets in lots of places are showing worrying signs of excess–the latest being Australia, which reported a pickup in speculative investment home lending. Meanwhile, various measures, including the return of retail investors to the market, have some calling for a correction in the U.S. stock market following a relentless rally over the summer and the first half of the fall.
There is no mystery about the trigger that analysts most worry about for a downturn in investor sentiment: all eyes are on the U.S. Federal Reserve and its plans to taper bond buying. Friday’s sharp rally in U.S. stocks suggested investors think the Fed is restrained from acting until about March, even if the economy warrants a reduction in bond buying. (Hence the glass-half-full read of the stronger-than-expected jobs report.) Any signal to the contrary–during Thursday’s Senate hearings into Fed Vice Chair Janet Yellen’s nomination to take over as Chair of the central bank, for example–and the party could be over."
Source: the Wall Street Journal
