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Weekly Comment by Dr Cees Bruggemans, Chief Economist First National Bank

The rule of thumb these past four years has been that 100 to 150 cent movements in the Rand amounts to noise. One has to get moves much bigger in scope to signal a possible change in direction.

Over the past few days we have seen euphoria turn to dust as the Rand took a sudden sharp tumble, even with precious metal prices at record levels.

Instead of moving deeper into 'five' territory as gold moved beyond $700, the Rand had difficulty in hugging 'six', finally giving way late last week, by Monday mid-morning at 6.42:$ seemingly traveling at great speed in a southerly direction. Equity prices also gave way.

There wasn't anything uniquely South African about this convulsion. A global reaction was underway affecting many markets simultaneously, from US equities to emerging market bonds, equities and currencies.

A long period of rising markets, especially in emerging assets, was increasingly exposed to correction.

The price rises of recent months made that predictable. An additional factor, however, has been the behaviour of key central bankers, in particular Bernanke at the Fed and Trichet at the ECB.

From the Fed's point of view, its job has for some time been made unnecessarily difficult by global markets keeping long yields down, lower than suited the Fed's reading of what was required. Growth had stayed lively and resource utilization had steadily tightened, requiring action from the Fed, possibly more than it was comfortable with (having less traction than desired).

As it became more difficult to project how the US and world economy will be responding in the months ahead, the markets acquired an obsessive preoccupation with likely Fed actions to come. What's more, anything said by Bernanke that wasn't explicitly negative and hawkish, was easily interpreted as dovish and implicitly signaling an imminent end to US rate tightening. In the process, such moments invited starting up a new cycle of financial speculation (considering US equity and bond behaviour), possibly prematurely from the Fed's point of view.

Over in Europe, Trichet has been experiencing something similar, described as an unwillingness of markets to think for themselves. Instead, they have increasingly become obsessive in monitoring (and misinterpreting) central bank thinking and likely actions.

What would you expect at crucial turning points, when the fog lies thick on the land, and a misstep can get anyone into deep trouble?

Still, it doesn't suit the central banks, as too much of a responsibility falls on their shoulders to divine the course of events and making financial markets and economies adjust to changing realities through interest rate changes at the short end.

The preferred option is that the large global markets do their own homework, and do most of the heavy lifting through their evolving positioning, thereby adjusting the global economy to events, with central banks at most having a watching brief, and at times only lightly intervening to keep the process smoothly unfolding.

Two things stare us in the face here.

The world may not be coming to an end. But central bankers may want to lighten the apron strings and force markets to think (and react) more by themselves.

As any parent will tell you, trying to separate a toddler from his mother can be traumatic. Lots of screaming, as crocodile tears overwhelm all.

Over a month ago already there was sudden upheaval in the markets that went half unnoticed. The rookie had reportedly committed an indiscretion. Fed chairman Bernanke had at a White House dinner suggested to a journalist that the markets hadn't understood his earlier testimony to Congress.

Pandemonium. On the day of the testimony, Bernanke was interpreted as dovish, with the end of rate tightening in sight. By the Monday morning that the media breathlessly reported the dinner 'indiscretion', the markets suddenly detected an interest rate hawk and sold off.

Instead, there may not have been an indiscretion. All means, fair and foul (Congressional testimony and female journalists) may have been pressed into service to refine the Bernanke message to the world: start thinking for yourself, and position accordingly so that the economy will benefit from your steerage, lightening the burden on me to somehow understand all and having to play God under very trying circumstances.

Not bad for a rookie. A few weeks on, ECB board members basically offered the same advice. Don't hang onto our every word so closely. Get your own opinion of what is happening in the world, and act accordingly. Such refined market responsiveness should assist in preventing the world economy from blowing too hot or too cold.

If this is what has happened, one outcome is the wish of the central bankers. Greater market uncertainty and the need to rethink (and reposition). In the process, the furniture gets rearranged a bit, though not without some damage.

So, if the speed of the world economy is what it is, energy and commodity prices are where they are, inflation is behaving the way it is, will US interest rates peak soon and European and Japanese rates not tighten much? Or will there be more of an adjustment then anticipated, and is one positioned for all eventualities?

The reality seems to be that long-term yields have been too low (giving extra lift to global growth, and incidentally also to commodities). There has been too much speculation of the fantastic kind, and too little soberness, while surrendering all the responsibility onto the shoulders of the key central banks.

It would seem therefore that we are in the midst of yet another recalibration. Financial markets are being invited to think more critically, which at the present juncture suggests a greater bias towards caution. That would ease the load on central banks.

Thus we have seen recently how interest rate commentary jumped (in the US from 5% to 6%), how US equities pulled back, and how emerging market bonds, equities and currencies came under pressure from a general bout of unease coursing through the global system. As of this morning it is quite a contagion.

None of this suggests the global party is over. Merely that table talk between a central banker nicknamed 'Gentle Ben' and an attractive financial journalist can have the most momentous of results, if that is the intension (though not necessarily by the journalist, who should feel a little used by now, if she has any sense of proportion).

That markets have a way of adjusting brutishly is no news either, especially in counters long richly favoured and thereby in any case overdue for correction.

But as we see market prices adjusting at some speed, this needn't mean that in an underlying sense things have or are fundamentally shifting. Instead, it is the workload that is moving.

Bottom line remains very attractive. Great growth in Asia. Accelerated recovery in Japan, and even Europe. The US may see more of a slowing later this year, after a revised 6.2% GDP growth in the first quarter, but it may not get out of hand.

As to commodities, the hedge funds have put some unwanted air in many tires, but supply and stock positions are rather constrained in many of these situations, with real demand remaining robust.

That doesn't look like a story that is about to collapse.

Iran and the Middle East are special situations, but energy security goes much wider today, when monitoring Russian, Chinese, Japanese, European and American moves (aside of the lunatic fringe in Venezuela, Bolivia, Nigeria and such like).

Then also the structural global imbalances and the Dollar's exposure are matters that won't go away quickly.

Yes, we have more volatility as markets correct. No, the fundamental picture hasn't changed much. The outlook remains encouraging.

Meanwhile, the Rand can correct some more, but as long as it remains this side of 7.00:$ it is all noise. When the correction has run its course and the global fundamentals reassert their influence, the Rand may come to reflect the higher precious metal prices more visibly, potentially firming anew.