Asia Pre-Open: Although President Trump pulled his punches, the market will need to respect the possibility of any strong signal as to whether the China/US conflict morphs from a battle of words to action.
The market calendar picks up again this week, and the primary focus will no doubt be the May employment report (Friday). And, if nothing else, the magnitude of recent moves could force investors' hands ahead of NFP.
While anarchy in the streets of major metropolitan areas across the US in the wake George Floyd's death threatens to throw a wet blanket on investor optimism over economic reopenings in the US.
Equities again rose sharply this week, driven by optimism that the reopening of economies around the world has not led to a surge in the number of coronavirus cases. Traders mapped favorably to the European Commission's proposal for a recovery fund built on the Franco-German suggestion of EUR500 bn in grants and added another EUR250 bn in loans. And investors believe the plan for joint debt issuance brings the EU one step closer to fiscal union. The escalation of China-US tensions over Hong Kong's autonomy towards the end of the week only partially curbed optimism.
The market calendar picks up again this week and the primary focus will no doubt be the May employment report (Friday). And, if nothing else, the magnitude of recent moves could force investors' hands ahead of NFP.
That’s not to mention the anarchy in the streets of major metropolitan areas across the US as the death of George Floyd threatens to throw a wet blanket on investor optimism over economic reopenings in the US.
Last week's most significant factoring moves were all going the other way, however. And, thematically, whether you believe in the sustainability of growth to value shift or not, portfolios and model funds are moving enough that investors needed to adjust.
Still, many questions remain highlighted by the usual weekend run of negative market outlook news flows. As usual, the "this market is not sustainable" mantra is quoted by some of Wall Street’s finest. Not everyone is on board as many believe recovery is going to take years, while those on the rally bus continue to advocate a selective approach versus a land-grab strategy.
Trump pulled punches
Most conversations on Friday suggested traders thought the bulk of HK security law fallout is now behind us. Some will be even more convinced that's the case after President Trump pulled punches when it came to the US administration’s China reprisals related to the new policies. US equities did manage to close in the green on Friday as there was nothing immediately risk-off or worrisome for stock markets in his comments.
The optimist in me suggests this could open the door for a further de-escalation of tension. The realist believes President Trump likely left the door open for more unfriendly reprisals at a later date, which suggests the US-China trade tiff overhang will remain a steady theme in the market narrative for some time. Undoubtedly the President will continue to touch on these reactions during the election run-up as these focal points provide more fodder for political grandstanding on an anti-China mandate.
But, for immediate concerns, the market may temporarily shelve the trade war escalation playbooks in favor of a non-combative response from the China script. Still, traders will need to respect the possibility of any strong signal as to whether the China/US conflict morphs from a battle of words to action. Given the frequent mismatch between policy discussion and policy action, this matters. So, traders will be on the lookout for China's reaction this week and how investors react to those news flows. Given the elevated level of bullish positioning in the market, as we bore witness last week, it takes little more than a love tap to give the market a nosebleed at lofty levels about 3000.
Still, the Fed’s blanket debt guarantees are an excellent mechanism for investors to latch onto, provided the short-term stress and liquidity crunch gives way to strong sustained post-COVID-19 recovery.
If one thinks nature comes back quickly in the age of the technology, businesses resist even quicker as Covid-19 has reshaped the way we rethink everything. The world is going through a chaotic process supporting business models that work, and starving those that do not. The question is how economies adapt to new circumstances.
Futures are carrying the positive momentum above 3000/200 DMA, supported by further lockdown easing and fresh stimulus hopes out of the EU and US.
Risk indicators, however, are trading a little more mixed as base metals struggled into week’s end.
Oil has recovered as early warning trade war indicators shifted from flashing red to a constant shade of amber. With the omnipresent overhang from Russia's bullying nature and threats to ease production, cuts could keep oil traders honest in the lead-up to the June OPEC+ meeting. The last thing oil traders need is a new supply deluge to rain down on the bull parade.
Futures are carrying the positive momentum above 3000/200 DMA, supported by further lockdown easing and fresh stimulus hopes out of the EU and US. Risk indicators, however, are trading a little more mixed as base metals struggled into week’s end.
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Two-year yields have covered their prior six-month range in the last week alone – and whether or not this move is sustainable matters a lot