The world's financial markets are currently lifeless and there is no clear trend, but all eyes and ears are tuned in on Mr Bernanke's Jackson Hole speech and investors are wondering whether the Federal Reserve will either announce or hint at QE3.

Should Mr Bernanke discuss or announce additional stimulus, it is probable that risky assets will rally, perhaps significantly. Under that scenario, safe havens such as US Treasuries and German Bunds will sell off and the world's reserve currency will come under pressure. On the contrary, if Mr Bernanke does not discuss additional stimulus, it is conceivable that the risky assets will take a hit and safe havens will appreciate in value.

Turning to the present situation, it is notable that Wall Street is leading the way and most major indices are currently consolidating just below the year's highs. This outperformance by US stocks is in line with my expectation and I believe that Wall Street will continue to do better than most markets. In technical terms, the S&P500 Index, NASDAQ Composite and the Dow Jones Industrial Average are trading above the 200-day moving average and the NYSE Advance/Decline Line is trading near its highs. These are positive developments and suggest that the uptrend has further to run.

Elsewhere, it is interesting to note that the Shanghai Composite Index has fallen to levels not seen since early 2009. Furthermore, the stock markets of China's major trade partners (Brazil and South Korea) are also in a downtrend and this implies that trouble is brewing in the Chinese economy.

Over in the commodity markets, thanks to the weather-related rally in the grains, the CCI Index has climbed above the 200-day moving average. By doing so, it has re-asserted its uptrend and a dip below that key moving average will now be required to question additional upside. Within the hard assets complex, the industrial commodities are languishing and both copper and crude oil are currently in a downtrend. I have always felt that additional stimulus will be needed to trigger the next multi month rally in the industrial commodities.

Looking at precious metals, both gold and silver are currently sitting just above the 200-day moving average. Thus, this is the perfect set up to establish a 'long' trade in both metals.

In the currencies patch, due to the recent FOMC minutes, the world's reserve currency has weakened somewhat and the US Dollar Index is currently trading below the 50-day as well as the 100-day moving average. In my view, it is only a matter of time before QE3 is unleashed, so it appears as though the yearlong uptrend in the greenback is now over.

Finally, over in the debt market, US Treasuries have strengthened over the past week and technically, they are still in an uptrend. In my view, the next sustainable downtrend in US Treasuries will commence when the Federal Reserve announces QE3. This may seem counterintuitive, but during the duration of QE1 and QE2, US Treasuries declined in value and the same trend is likely to unfold during QE3.

Unless you are anticipating further price appreciation in US Treasuries, today's miniscule yields do not offer a sound reason to invest in this asset. Income seeking investors should focus on US mortgage REITS as well as high yield bonds offered by companies in the developing world.

(HK Edition 09/01/2012 page2)