Global markets have fallen for weeks due to events on US economy slowing down, China economy slowing down and Greece's debt issue. The pull back whether due to fundamental or speculation reasons still debatable.
US being the world #1 economy also the root cause of the 2008 global financial crisis has been struggling to recover with weak economic data lately especially the job market whereby job creation still not enough to bring down the unemployment rate of more than 9%. US has been through stimulus program of QE1 ( which failed to bring down the unemployment rate ) and now QE2 is expiring end of this month also showing little effect in bringing the unemployment rate down. Concern now is will there be a QE3. If QE1 and QE2 can't work, how QE3 going to work ? Some are prompting for QE3 as that will inject large amount of liquidity that will be good for stock markets but is not a long term solution to recover the struggling economy. The side effect of QE has drawn inflation issue in particular to emerging countries. US should not continue to rely on another QE to rescue its economy but rather go back to the fundamental of US Government spends on infrastructure to create jobs, allow people to have income and spend to heal the economy. US Government also facing a deficit capping issue come this August and they must up the cap in order for US Government to continue to spend.
China being world #2 economy is facing slowing down in economy due to its tightening measures to curb inflation. At the moment, the inflation still above what the Chinese Government forecast ( but probably has peaked already ). Since the 2008 recession, China Government rolled out stimulus program in spending on infrastructure has helped China recovered from recession and also at the same time led the rest of the world out of it. With US still struggling in its economy, the very much dependent on China economy to drag the rest of the world to recovery still in focus. As long as the China Government could not control the inflation, they will not focus back to economy growth. We do have a deadlock situation now in which the stimulus program from US created unwanted inflation to China which spurred it to become overheating. To prevent bubble from bursting, China need to curb the overheating in the expense of slowing down economy growth and that will not go down well in helping US to recover.
Greece's debt was first surfaced last year resulting it getting a bailout from EU and IMF but unfortunately a year later, the debt comes to maturity but the problem remains unsolved. Greece now need a second bailout or face the consequences of default ( worst case being kick out of EU ). Apart from Greece, Ireland and Portugal also needed the bailout. Talk on whether Spain will be next is causing investors to worry. A default on Greece's debt and kick out of EU might not be a bad solution. This will send a strong signal to Ireland and Portugal that they need to get things right with the first bailout.
From the fundamental aspect, the recent global markets pull back are in reaction to the weak economic data and these could be due to the Japan natural disaster happened in March this year. Is the global markets over-reacting to that given that in March people were expecting the impact on global economy given that Japan is the world #3 economy country.
In my personal opinion, US recovery should no longer rely on another stimulus program in the form of QE3 given the fact that QE1 and QE2 did not actually work out as they were originally planned. US Government should focus on spending in infrastructure ( like what China Government did in 2008 ). By doing so, this will not cause unwanted inflation in emerging countries and allow those to re-focus back to economy growth to pull the rest of the world back on track again. EU debt issue, so far with Germany ( the world #4 economy ) providing the support, chances are the issue is not as serious as the first two events.
The event that could trigger global markets for a rebound would be China Government ability to control its inflation and re-focus back to its economy growth rather than another QE3. Most expected China inflation to be peaked in 1H2011 and so far the data seemed to suggest so.
