The market is in an indecisive mood today, flip-flopping between positive and negative territory and reflecting ongoing caution about where the economy is going in the UK and overseas.
The latest monthly fund managers survey from Merrill Lynch paints a picture of growing pessimism over the economic outlook, particularly fears of stagflation rearing its head. But alongside that is a view that equities are still attractive.
The investment bank's report shows more than three quarters of its panel believe the global economy is entering a year when growth is below trend while inflation is above trend.
Many more fund managers believe that recession either has begun or will do so soon. The net percentage of fund managers who believe the global economy is already in recession has almost tripled this year.
Perhaps just as worrying, those asset managers specialising in Asia and emerging markets are highlighting worries about Chinese economic growth.
Presenting the report, consultant to Merrill, David Bowers, told reporters today: "People have grown both wary of bonds and equities ... asset allocators are staying on the sidelines."
He added that their cash levels have reached a new high, risk appetite is close to record lows and yet fund managers continue to see value in equities, with their current favourites being commodity-related stocks in the oil and gas sector.
"You have got the raw ingredients for a bear squeeze. It is just a case of finding a catalyst. Whether the events of the last 48 hours provide that catalyst remains to be seen," says Bowers.
Full details of the report at: http://www.ml.com/index.asp?id=7695_7696_8149_88278_92707_94125&ML.grp=HL
With equity markets in Europe and the US both bobbing around the unchanged mark it is indeed hard to tell. The Dow is currently down 3 points at 12,396 and the FTSE 100 is down 8 points at 5598.
Martin Slaney, head of derivatives at GFT Global Markets cites an "over-active rumour mill".
"We are experiencing an unusually high amount of rumours winging around the stock market," he says.
"Much of this is probably unfounded supposition and speculation, but with panic still gripping the markets, investors seem to be attaching more credence to the scaremongers than would be the case in more stable times."
One final note of caution worth mentioning comes from Terra Firma boss Guy Hands. He says in the private equity firm's annual report today: "Private equity will suffer considerably over the course of the next two years as the current difficult markets take their toll."
