Stephen Innes
SPI Asset Management
This morning’s market is like driving a car over potholes, it may be bumpy, but you're rarely in danger with the thought of a FED and PBoC policy backstop. But if we hit a significant economic air pocket or a super spreader risk-off vortex, all bets are off
It is brutally impossible to evaluate theCovid19 impact given the scarcity of data since the outbreak. An election influenced US PMI didn't cut it, and the massive decline in China car sales was expected. And while it's tremendous and risk helpful to see PBOC Vice Gov Chen stating the bank will conduct RRR discounts soon, but for stimulus to work, to put it simplistically, people have to return to work for supply chains to return to full speed. And for this to happen, there seem to be more and more obstacles in the way than many currently appear to assume. And what should be obvious to say that especially the equity markets where the bullishly ingrained mantra of 'stimulus-is-always good' might turn out not to be the case this time around.
Weekend news flows aside. The biggest problem is that the market is still relatively complacent, with investors apparently magnetized to the SPX 3300. For the next week or possibly month or so, it's challenging to visualize the virus transmission outside of China to reverse again. If we get more Asian counties declaring a red travel alert and possibly causing Tokyo to rethink 2020 Olympic plans or even cancel, these shockwaves will crush market sentiment, and the program selling would kick in where 5-10 % drop in global equities is possible as there little policy room for the ECB, BoJ or other NIRP economies central banks to toggle monetary policy lower.
SPI Asset Management provides forex, commodities, and global indices analysis, in a timely and accurate fashion on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors.
Our publications are for general information purposes only. It is not investment advice or a solicitation to buy or sell securities.
Opinions are the authors — not necessarily SPI Asset Management its officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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