IN ANCIENT Greece, warring states would temporarily lay down their arms to enable athletes to travel safely to the Olympic Games to compete.

The same observation can be made of the most recent two Olympic Games of the modern era, where strife in the volatile financial markets is concerned.

In August 2008, the Beijing Olympics offered the jittery financial markets a brief two-week reprieve from the maelstrom that threatened to bring global lenders to their knees.

But only weeks after the games ended, the attacks resumed in earnest, culminating in the collapse of US investment bank Lehman Brothers, which triggered a severe economic slowdown from which the United States and Europe have yet to make a full recovery.

This month, the spectacular Olympics staged in London offered the world's financial markets a similarly much needed reprieve from yet another blow-up in the euro zone debt crisis in May.

But as the glow of the London Games started to fade after they finished last week, questions have been asked about the sustainability of the recent market rally taking place while the games were in full swing.

The uncanny calm which has now settled on the world's financial markets was thanks in part to a promise made by European Central Bank (ECB) chief Mario Draghi at the start of the London Games that the "ECB is ready to do whatever it takes to preserve the euro".

Traders took his remarks to mean that the ECB was prepared to print enough money to keep insolvent members of the troubled 17-nation euro zone afloat. This would prevent another Lehman-like crisis from being triggered by, say, the disorderly departure of a bankrupt euro zone member such as Greece.

But Mr Draghi's record of soothing the market's pangs has, so far, not been inspiring.

The last time he intervened, in December last year, by directing cheap loans at European lenders, global stock markets staged a three-month rally that was subsequently snuffed out by squabbles among European politicians as they tried to find a longer-term solution to their debt crisis.

That pattern may well repeat itself.

Major stock market indexes such as the Straits Times Index have run up 14 per cent in the past three months, as they climb back to - or even surpass - previous highs in April.

But there is a noticeable lack of conviction about the rally, as trading in the stock market slowed to a snail's pace.

In tandem with the razor-thin trading volumes, the Wall Street's Vix Index - the so-called fear gauge which tracks the swings in the stocks that make up the widely watched S&P 500 Index - has fallen to a six-year low.

But the beguiling calm - as reflected by the drop in the Vix - suggests that traders may be adopting a wait-and-see attitude and sitting on the sidelines, wary that the current rally may turn out to be a bear trap luring them to their doom.

If the precedent established by the Beijing Olympics is anything to go by, there is ample risk that another deluge of bad news next month may just send stock prices on the roller coaster again.

While the focus so far this year has always been the euro zone debt crisis, attention may well shift to the US where incumbent Barack Obama is fighting to stay on for a second term in the increasingly fractious November presidential elections.

What may also spook market sentiment is the so-called "fiscal cliff", with billions of dollars in mandatory budget cuts coming into effect in the US next year and dampening its already sick economy unless the country's bitterly divided policymakers can cut a deal before then.

In our own backyard, the lacklustre second-quarter results produced by firms with big China exposure, such as Wilmar International, suggests that the mainland's seemingly insatiable appetite for everything from iron ore to edible oils may be waning.

What is also worrisome is that the previously red-hot Shanghai stock market has hardly moved at all, even as foreign investors poured money back into Singapore and Hong Kong which they regard as proxies for riding on the mainland's economic miracle.

This week brings with it the annual Jackson Hole meeting hosted by the US Federal Reserve for central bankers.

Sure, there will be renewed pleas to the Fed to re-start its money printing machinery to juice up the market. But there will be no prize for guessing where the market may be headed, if these pleas fall on deaf ears.

engyeow@sph.com.sg