Merchant Thoughts – Stocks are moving faster, but without the basic support for buying.

A rally without fluidity

This is what is called "gathering without fluidity". Stocks are up slightly, but without the basic buy support that could be expected. Stocks are up slightly, but without the basic buy support that could be expected. Finally, the resistance level 2815 fell and the bulls cautiously, gently rejoicing. There are however yellow flags here and there that worry the participants. This goes back to this "rallyless flow" business: the last stage of the big global stock recovery is not supported by investor flows. In fact, investor flows seem to have decreases somewhat. The reasoning behind this move is somewhat speculative. The impact of share buybacks is a popular argument. Whatever the cause, this rally is not confident.

Economic conditions are deteriorating

Market participants may still be disdained for the 2018 market correction. Bitterness and cynicism stemming from this are understandable. Much of the frustration, it seems, comes from widespread recognition that this rally took place in the absence of strong fundamentals. On the contrary, when looking at the macroeconomic outlook, there is more reason to be bullish than bullish at the moment. Global growth slows (almost) irrefutably, and some of the geopolitical sensitivities, such as Brexit and the US-China trade war, show little new signs of progress. An important factor in keeping this gathering alive with riskier badets, perhaps worryingly, is a small case of "fear of missing out".

Markets bet on political support

Policy makers trigger this behavior: market players hope to reverse the economic situation. These political interventions are motivated by good intentions and of course: economic growth around the world is sibilant and those who have the task of remedying this situation are experimenting with ways of curing it. The concern now is the unexpected consequences, of course. Last Friday, two new stories about a stimulating economic policy galvanized the markets. The first came from the Board of Directors of the Bank of Japan, which, as expected, downgraded its economic outlook and alluded to a sustained monetary stimulus. The second came from Chinese Premier Li Keqiang, who announced more tax measures to combat the economic slowdown in China.

Prime Minister Li raises optimism

The last of the two stories had the most weight. This betrays the major concern of the financial markets: the health of the Chinese (and therefore global) economy. The move to stocks and markets related to Friday's growth was catalyzed by Premier Li's daring, in particular. To dispel the concern over the deterioration of the Chinese labor market, he said the Communist Party leadership would seek to reduce the reserve requirement ratio, taxes and interest rates, if any. The risk and growth badets of the region have been in the headlines. The CSI300 gained 1.26% for the day and the Australian dollar rose to 0.7100, despite a slight contraction in yield spreads.

The most accurate indicators

Although speculative badets have shown signs of optimism due to the prospect of new fiscal and financial incentives, better barometers growth prospects have not been upset. Bond yields have generally fallen as traders continue to integrate their prices in a world of lower growth and lower interest rates. The 10-year US Treasury bill closed at 2.58% over the weekend; and we have increased the bets on the fact that the Fed, the ECB and our own RBA should reduce their rates before the end of 2019. Admittedly, this dynamic has supported stocks and risky badets such as credit to companies. However, if economic growth is to slow as expected, the question is, how long does it take before the slowdown in growth is reflected in the earnings outlook.

The measures of fear remain under control

Only the clearest and brightest crystal ball can predict that one. Market players can be emboldened in the short term, regardless of whether the hunt for yield, some technical factors and momentum push the herd to push the market higher. Naturally, this entails risks, although the areas in which one might expect one to protect oneself against this love do not find love either. Gold is up but remains closely linked to the pivot point of US $ 1300. The USD does not attract safe haven flows either. The most striking point may be that the VIX continued to fall, closing at 12.88 last week; and poetically, is at the bottom of not recorded since the notorious speech of Jerome Powell "far from the neutrality".

ASX 200 to get out of doors

It has not been the most reliable indicator of the intraday fortunes of the ASX 200 recently, but the latest traded price on the SPI futures contract indicates a jump of 35 points at the opening today. Part of this is expected to result from a slight rebound following the rebalancing of the Friday index, which has resulted in increased activity of heavily weighted stocks at Friday's close. Last week for the ASX 200, when compared to other major global stock indexes, was disappointing. It was one of the few to close lower for the week. Wall Street traders mumble about the current potential of US indices to set new records. For us, the ASX 200 is now at 2.76% of its peak for 10 years.