Contrary views yield single reality

Ground Floor: Nothing illustrates the double-sided nature of markets more than the two reports I read last weekend.

One report analysed the depreciation against the dollar of the Japanese yen, Canadian and Aussie dollars, attributing the falls to the fact that Chinese authorities have been trying to slow down the growth rate of the world's most supercharged economy.

The Chinese central bank raises its reserve ratio by 0.5 of a percentage point on July 5th, following on its increase of its base lending rate previously. Both did so by making less funds available for lending through a higher reserve requirement; and by making what funds are available for lending more expensive through the base rate hike, the Chinese are hoping to take some of the edge off their rampant economy. On the basis that Japan is China's largest trading partner, with the Australians and Canadians also having considerable interests in the country, traders decided this was bad news for those currencies.

You'd be forgiven for thinking, therefore, that traders were feeling less positive about China's growth prospects for the next few months, although - in the parlance of equity traders - that would be a "hold" rather than a "sell". However, the second report takes a different view. Looking at oil prices, which have nudged back up to the $70 (€55.70) plus levels, analysts are anticipating higher demand from the US (the summer driving season is upon us) and China. The oil guys clearly don't think the Chinese authorities' efforts to pare back demand are going to have any impact.

Clearly, the oil traders and currency traders have looked at the same information and come up with completely different scenarios for the future. It will be interesting to see which of them has made the right bet.

There are conflicting reports too on the future direction of equity markets. While everyone has been rattled by the volatility of recent weeks and some awful falls, there is enthusiasm to latch on to any positive information that leads to temporary gains.

The Chinese action on their reserve requirement had its impact on stocks, as traders decided that this would dampen demand and growth. At the same time, they were also heartened a little by Ben Bernanke's comments about inflation. According to Ben, the Federal Reserve, while concerned about inflation and in particular by the problems posed by increasing oil prices, felt the impact of those price rises would lessen and that the US economy would adjust to take account of them. Actually, traders were heartened because the markets surged on the back of his comments.

In India - home of another of the world's steaming economies - people decided they'd had enough of the doom and gloom and that equities were cheap and so the market had a record rise.

Meanwhile, one of their own analysts commented that the fundamentals of the Indian economy hadn't changed and that they were still looking for growth rates of 7-8 per cent.

The problem for any domestic market is that regardless of its fundamental strength, it's the global economy that has the greatest influence. The fact that the Irish economy is still performing well didn't stop the Iseq from plunging with the rest of them. Nothing illustrates how small our world is better than the unified responses of markets to global events. You can take a contrarian view for a while, but ultimately, you're going to fall in with the rest of them because there's only so long you can buck the trend without ending up with egg on your face.

It doesn't really matter what the fundamentals of each individual economy might be - there's a bigger picture and although you can make two different analyses of the situation, there will eventually only be one result.

I couldn't help wondering whether or not Bush has taken that particular message on board when it comes to the environment. While a city girl at heart, I'm nevertheless as concerned as the next person when it comes to looking after the planet. Anyway, in auncharacteristic action, Bush designated the northwest Hawaiian chain of islands a marine reserve last week. Five years ago, the Bush administration considered removing the environmental protection for the area, which is nearly 140,000 sq m. Apparently, he was fired up after seeing a movie about it and was taken by its natural beauty.

Crikey! Alaska is beautiful too, but that didn't stop him deciding to pursue the opening of the Arctic National Wildlife Refuge for oil exploration. Obviously, the marine waters of Hawaii aren't located in the middle of an oil field. Fortunately for this particular ecosystem, the major inhabitants are dolphins, green turtles and monk seals. The only people that are going to be upset are the fishermen and those who mine for coral in the area. But there aren't very many of them, it's not a major industry and I guess that the political donations by fishermen and coral miners haven't matched those of the oil barons.

Or maybe I'm just looking at the wrong side of that story.

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