The Christmas and New Year period has proved to be an interesting one for investment markets. In the lead up to Christmas, and in the first few weeks of the New Year, markets bounded ahead, perhaps riding the Christmas cheer and the fact that it appeared that the difficult previous few years were finally behind us, and we had a new decade to look forward to. This quickly changed however, with the realisation that although we are in a new decade the problems that concluded the last one will need to be paid for and so issues of debt started to become a focus of many in the market.

Greece became the focus of financial attention, and to a lesser extent Spain and Portugal, and how they would deal with their deficits. In addition to this there was significant debate on how the EU would deal with this issue as a community. These concerns saw stock markets move sharply lower with the Australian market moving down from 12 month highs and to levels below where they closed out the previous calendar year. It then seemed that almost as soon as this new ‘crisis’ emerged that it began to recede and markets began moving back up again as the EU pledged support for Greece and they themselves began addressing the deficit.

This volatility in such a relatively short period showed that whilst the healing process for markets is in progress, the patient is still susceptible to relapses. These swings have led many to ask why global markets are directly affecting the Australian market, given the continued strong performance of the Australian economy. In a recent speech Glen Stevens noted that Australia was in good shape relative to other countries, but from the RBA’s point of view, issues arising in other global economies did present risks to the economic outlook of the nation. Perhaps this explains why when overseas markets get nervous we get the yips.