Thoughts of Traders – The Long and the Short

The US economy still in the lead

The rebound in global equity markets has been consistent, but economic data suggests a return to the "divergent global growth" narrative. That's what dominated the second half of 2018: the United States buzzes, while the rest of the world economy stagnates. The difference between economic fortunes is not so striking now, but it remains patently persistent. It depends on how long such dynamics can last. Frankly, the market players were resigned to the fact that it was already over. But a quick review of economic data, even on Friday, suggests that the story still has legs. A generalized global economic slowdown is likely to come to an end. For the moment though, the US economy is out of the water, not the rest of the world.

Financial conditions and favorable economic data

The Dovish Fed is supportive of this and will continue to support it, as financial conditions have eased again following the FOMC meeting last week. This is not a mystery for the markets: the correlation between a recovery of financial conditions and the performance of equities is clear. Fears of a US recession, based solely on macroeconomic data, are still unfounded. The figures released Friday in the United States were not perfect, but they were still very strong. The ISM manufacturing industry's PMI exceeded the consensus forecasts of the economist, while the non-farm payroll in the United States showed an increase of 304,000 jobs in the US. American economy. Employment data were marred by job losses in previous months, a slowdown in annualized wage growth and a rise in the unemployment rate. Overall, however, the data showed a still strong US economy.

Asia and Europe in net slowdown

This contrasts with what came out of Europe and the rest of the world during Friday's trading. Europe is clearly heading for an economic slowdown and this is becoming a major concern. Chinese economic data also reminded traders that the Middle Kingdom was in a conflict situation. The published PMI numbers of the two geographic regions greatly disappointed the bulls. The publication of Caixin PMI revealed a contraction much stronger than had been estimated, while the balance of several European PMI figures testified to a general weakness in the euro area – especially from the economy Italian in difficulty. To be fair, the European CPI figures have slightly exceeded expectations. But at 1.1% annualized, it remains so far below the target that the notion that the ECB will raise rates before the next recession seems laughable.

Neutral bias in the financial markets Friday

Even if the numbers were weak, they did not seem to stir the traders a lot. It is badumed that the outlook reflected in the data has been largely integrated with the market price. On the contrary, the markets included a worse (collective) outcome than the weekend data. Interest rate traders have very reluctantly relied on rate hikes from the ECB and the Fed, although the balance of opinion is favorable to the lack of movement in 2019. Bonds were sold on this basis and emerging market badets, which had benefited the most from the Fed dovish, pulled back to end the week. The US dollar is in a downtrend in the near term, apparently keeping gold prices on the rise. The Australian dollar, however, maintained its range, hovering around 0.7200.

The recovery continues to roll

The commerce of Friday, when thoroughly evaluated, belonged to the bulls, however. Really, the entirety of last week did. It was not a unanimous decision, far from it; but it was enough to keep intact the "V" recovery of the equity markets. The extreme crisis of January's stock markets is pushing more and more experts to question the future of the sale. The "shape" of this price action is quite unusual, they tell us. What has been experienced in the last quarter of 2018 has been somewhat extraordinary. An extraordinary recovery may be a necessary consequence. The market's curiosity is as follows: Wall Street has visibly broken with its downward trend, so the next lowest in the market is laying the foundation for the next upward trend.

The ASX about to win this morning

This US advance will result in a 20-point gain for the ASX 200 this morning, based on the last price traded on the SPI futures contract. Friday's trading was not as optimistic for the ASX as it was for other parts of the global equity market. The index closed flat, a day with above average volume and a relatively poor width. Iron ore prices, which have maintained a steady rebound since the tragic collapse of the Vale Dam, fueled a rebound in mining stocks. The commodities sector added 4 points to the ASX 200 on Friday and is ready for a further rise in oil prices, a weaker US dollar and market support elements in general, supporting the international commodity markets. basic products.

Banks under supervision today

The challenge for the market will be to maintain an upward trend while there are still many concerns regarding the financial sector. The final report of the Hayne Royal Commission is released today after the publication of the contract. The uncertainty generated by the report's recommendations maintains the upside potential of the banks' shares and hence the ASX 200. Only time will really tell which recommendations will flow from the report – with less than 12 hours up to date. 39, when it is published, markets will not wait long for answers. Be that as it may, it will be badyzed in terms of its potential impact on the credit conditions of the Australian economy, notably due to the sharp downturn in Australian real estate prices and the recent slowdown in credit growth in Australia. consumption in the economy as a whole.