Mixed fortunes continue to dominate the equity markets. US markets outperformed following the midterms but European equities lagged due to uncertainty from the Brexit situation and Italy’s budget dispute with the EU.
It’s risk off for stocks once again as a result of fundamentals and liquidity combing to suppress stock prices. I’m still trying to find a good explanation for this downward volatility. The obvious mainstream view is that China and Europe are already slowing down as uncertainty from tariffs hit trade and this is filtering back to the US economy. In addition, higher rates are making stocks look pricey.
The Fed fund rate hit 2.25% and the Fed is talking about adding another 100 basis point hike to bring the rate to 3.25%. This implies negative real growth. This makes traders nervous. Why raise rates as growth is slowing?
It pays to be an optimist and as Monty Python taught me, always look on the brighter side of Life.
From a macro perspective I see two pillars of optimism: corporations and consumers. Both of which remain healthy in my opinion. US corporations continue to generate earnings growth above it’s global peers while domestically, unemployment is low, wages are increasing and consumer confidence is high.
Crude oil prices entered bear market territory as a multitude of factors weighed on sentiment. It’s not often you see such a cascading waterfall drop and I happen to love such price action.
In all honesty this was not much of a surprise to me. Good old fashioned supply/demand fundamentals are in play. The US, Russia and Saudi Arabia and at maximum oil production levels.
The lead up to the United States renewing sanctions on Iran at the start of November had offered support to oil prices. However, markets had not predicted the extent of the waivers the United States granted to China, South Korea and India. As a result, the impact of those US sanctions on Iran was softer than expected.
Global oil demand has also been weaker of late, so the supply relief coming from these waivers led oil prices lower. In addition, US inventories marked their seventh straight week of builds last week. The overhang from the broad market de-risking we have seen in the last month is also playing a part. October saw broad risk-off sentiment with concerns around global growth and geopolitical factors also weighing on the market.
Thursday, November 15
US Federal Reserve Vice Chairman Randal K. Quarles’ Semi-Annual Testimony Before the Senate Banking Committee
Australia October Unemployment Rate
Friday, November 16
Eurozone October CPI
US October Industrial Production
Monday, November 19
Japan October Trade Balance