June 20, 2022

Despite attempts at a modest rebound on Friday, European markets still finished lower for the second week in succession, posting their lowest weekly closes since March. US markets also finished the week similarly mixed, but also sharply lower, with the S&P500 posting its worst week since March 2020, ahead of the Juneteenth long weekend. As we start a new week and the mixed finish last week, European markets look set to start the week on the back foot.   At the end of last month there had been some optimism that the US economy might be able to achieve some form of soft landing. This prompted a sharp decline in US treasury yields and a rebound in US markets from their lows, as markets started to price in the prospect of a rate pause in September. The May CPI numbers upended that mindset quite abruptly, sending yields sharply higher, and stock markets back down again, a trend that was exacerbated by a policy pivot by the Federal Reserve, as well as the Swiss National Bank last week. Not only did the US central bank hike rates by 75bps but more surprisingly the SNB hiked rates as well, choosing to hike… Read More »Recession concerns set to weigh on European open

Fundamentals in focus, but key risks remain US stock and bond markets are closed at the start of the week for the Juneteenth national holiday, which comes at a good time as markets have been on a rollercoaster ride in recent days. US equities finished mostly higher on Friday, however, that came after some steep losses post Wednesday’s Federal Reserve meeting, where the US central bank hiked interest rates by 75bps and revised down its growth forecasts for this year and next. The markets have been spooked ever since the May report for US inflation was released, which showed prices rising at a faster pace than expected. Combined with a Fed in an aggressive tightening mode and this has caused risk appetite to nose-dive. The bulk of the selling last week was in the growth and pro-cyclical sectors of the economy, such as tech and the travel sector, however, the move lower was broad-based as the Vix index, Wall Street’s fear gauge, rose to its highest level since early May. In a recent note, we pointed out that historically bear markets can last up to 9 months’, thus, since the current sell off started in January, we may still have… Read More »Market update: It’s time to take a breather, but what comes next?

S&P 500 likely put in a short-term bottom, and the fresh long position is profitable from the get-go. Bonds offered the first promising signs, and so far only value has acted upon it – that provides more fuel to the upcoming relief rally. TLT performance was good, but seeing even higher volume would be more convincing regarding the rally‘s longevity. Especially since the dollar is rising again – the yen carry trade can go on. Even cryptos are having a good day today so far, meaning we have a bit more to run still. That bodes well for real assets too – both gold and silver caught a solid bid yesterday, and GDX lagging behind is balanced out by NEM outperforming. The precious metals skies are slowly brightening, and not even another 75bp hike looks being able to sink them. Deteriorating real economy data would underpin them more so than crude oil. All the demand destruction isn‘t yet in, and black gold would adjust to the arriving economy growth softpatch – but we haven‘t seen the spike yet. Anyway, it‘s worthwhile to tread cautiously with the whole portfolio because the tightening phase, the pressure on the Fed isn‘t relenting all… Read More »Little reprieve