Equity climbs the way of worry – partly a function that no news on US banks is good news for risky assets. While we also see bullish flow in US bond markets, and as yields fall the result growth is working well and tech is on a flyer.
It seems as long as rate cuts remain priced around 50bp for 2H23 in the US that momentum favours the brave.
USD volatility is also on the decline, and we see the USDX seeing grind-type price action. That said, the recent trend lower from 6 March may be called into question given the raft of US data out this coming week.
I'm not sure we’ll learn anything new from the US data this week and it may need a significant beat/miss to have the market questioning the hot labour market or whether equity should be pricing a higher probability of a future recession. Trump in court will get the lion's share of headlines, and while it may shake the social fabric in the US, so far, the markets are portraying that it's not something to trade on.
For now, we continue to watch the tape in the US/EU banks and whether bond traders react to the US data flow – the spillover effect, as we know, are higher highs and lows in equity markets and concerns of underperforming a benchmark.
Interest Rate Review
Market pricing and current expectations for the cumulative no. of hikes/cuts for each future central bank meeting this year.
Expected policy response by December:
Fed -47bp
RBA -17bp
ECB +55bp
BoE +32bp
The main event – the key known event risks
US
Australia
NZ
UK
Europe
Japan
Canada
Chart of the day - The NAS100 has rallied 12.5% since the 13 March low, and while starting to look overbought, momentum is clearly strong. The closing break of the bull flag and 12,893 horizontal resistance offers a technical target of 13,800. Price is bull trending and hugging the upper Bollinger Band, with pullbacks contained to the 5-day EMA. Fundamentally, if capital continues to flow into US treasuries and yields – both nominal and real – are grinding lower, then growth stocks and mega-cap tech should outperform. A weaker US non-farm payrolls this Friday and further concerns around the US banks that keep rate cuts priced for 2023 would be a bullish catalyst.
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