Connect with us

Economics

Flattering to deceive

The buy everything trade returned with gusto overnight. Equities rose strongly in Europe and the United States, the US dollar fell, and precious metals and energy rallied. Looks may flatter to deceive though, with the rallies in precious metals and oil likely propelled by the knock-on effects of the rise in equities, rather than a […]

Share this article:

Published

on

This article was originally published by Market Pulse

The buy everything trade returned with gusto overnight. Equities rose strongly in Europe and the United States, the US dollar fell, and precious metals and energy rallied. Looks may flatter to deceive though, with the rallies in precious metals and oil likely propelled by the knock-on effects of the rise in equities, rather than a sudden structural change in their outlooks, especially oil.

With the end of the month and the quarter upon markets, a lot of portfolio rebalancing is occurring in the institutional investor space. I would suggest that those flows, rather than a sudden “the world is saved” epiphany are the genesis of the overnight equity rally. That appears to have dragged in the FOMO buy the dip mob on a day when nothing materially changed in the world to justify the moves. US airline stocks, in particular, and banks had an exceptional day. A session where the buy everything mob think airlines look cheap is as good a warning sign for the longevity of the overnight rally as I’ve ever seen. At least big tech is cashflow positive, even if they are not cheap.

In the absence of any headlines to disagree with the buy everything premise, Asian stock markets look set to trade positively today, with the US index futures all in the green. The procyclical Australian and New Zealand dollars will no doubt capture the same tailwind, as will regional Asian currencies.

The potential for four seasons in one day, ending in winter, is there before markets though in the shape of the first Presidential debate this evening. Revelations from the New York Times (NYT) about the state of President Trump’s financial affairs and his business empire will bring an extra edge to the debate. Behind in the polls and wrongfooted by the NYT, President “Tax-Return” Trump will have quite a bit of ground to make up on Democrat candidate Mr “Sleepy-Joe” Biden. We can expect fireworks from the President in particular, with the first debate regarded as the most important by political commentators.

With China PMIs and the US Non-Farm Payrolls still to come this week also, there is plenty of risks ahead, and precious little reason to get excited that the global recovery started yesterday on the 28th of September. Investors should be aware of getting sucked into what may be a sucker’s rally.

This morning, South Korean data for August disappointed. Construction Output, Industrial Output and Manufacturing Production all disappointed, although Retail Sales rose. The data highlights the uneven nature of the Asia region’s recovery, and that will likely be confirmed by Singapore PPI this afternoon and Vietnam’s data dump at 1000 SGT.

One positive of real substance being reported by UK’s The Times newspaper today is a potential breakthrough in trade negotiations between the UK and Europe. European negotiators are indicating they are prepared to start working on a joint legal text, while sidestepping the government subsidy and fishing rights sticking points. Sterling rallied overnight and has moved higher to 1.2850 this morning in Asia. If confirmed, it would be a breakthrough for both sides, but notably for the UK. Broadly speaking, my view is that a trade-deal failure would see sterling fall back to the 1.2000 region, whilst an agreement would see Sterling retest 1.3400. Neither outcome is, in my opinion, priced into the market.

us dollar

Share this article:

Economics

Seeing the Student Loan Crisis as a Form of Boom and Bust

In a market economy, prices are determined by supply and demand: how much of a quantity is being offered and how much value people place on that good relative…

Share this article:

Continue Reading
Economics

Interest Rate Hike Hurts Homebuilders

Well, folks, the talk of the week has certainly been about the Federal Open Market Committee (FOMC) meeting this past Wednesday.
As we talked about on…

Share this article:

Continue Reading
Economics

US Marine: “I Didn’t Join The Military To Fight For Taiwan”

US Marine: "I Didn’t Join The Military To Fight For Taiwan"

Authored by 13-year military veteran Dan McKnight,

Are you ready to go to war…

Share this article:

Continue Reading

Trending