A very ordinary Monday with market sentiment skewed towards risk-off. With the ECB meeting Thursday investors are taking time to reexamine strategies. Asia equity markets are broadly in the red highlighting the negative macroview. The conversation over stock markets reversal-point continues to gain traction. Our overall thought is that the fate of stocks markets will be determined more by financial conditions then business cycle. Global growth has been riding a wave accommodative monetary policy and fiscal stimulus, which allowed investors to overlook negative macro developments. Sending asset prices to clear bubble territory. But in the face of expected tightening in financial / credit conditions, slowing China, trade tensions, geopolitical stress is now taking a toll on investors psyche. Not to mention the sane strategy of locking in a returns before a broader correction wipes out 9-months of hard work. It’s hard to image another alternative senario then a significate equity correct. Although as slow deflation is preferable to a pop (cant help remembering the Feds history of bubble-popping). JPY and CHF gains continue, highlighting investors’ concerns. Both USDCHF and USDJPY are nearing range support. Higher US bond yields and stronger labor market report will keep the USD in demand, despite Trumps threats of more tariffs on imports from China. The Fed is likely increase rates on September 26th and debate of a further hike in December, currently priced as a 70% probability.
By Peter Rosenstreich
