It is interesting to see how whimsical a market can be from one week to another. Last week we have been seeing a string of positive economic headlines, propelling S&P500 more than 2% upwards. A major portion of it came from energy stocks as oil market discounting any glut in supply and rose steadily with higher oil futures prices (it has breached $63/bbl.).
The market has definitely become a risk at the start of the coming week. Better Chinese PMI, US ISM manufacturing data, and Non-farm payroll number of 196K last Friday undoubtedly keep the bulls optimistic. After all, Bernanke might be right all along – inverted yield curve – may not be an indicator of upcoming recessions, well at least not in 2020 it seems. The reason behind this euphoria is that China with its Central Bank (PBoC) being arguably the most agile and innovative among its peers, has shown its resilience from the slowdown of global growth.
Investors may even, in fact, start speculating if China’s economy has reached its bottom and on its path to recovery. Most analysts will say the US is still in a somewhat cooling downtrend, but with a recovery in the Asian economy and dovish Fed, the stock market will likely be supported. The political situation in Europe is also looking better as GBPUSD price action now is dismissing ‘hard’ no-deal Brexit and May will get another extension beyond the 12 April dateline. Next week, the key macro headlines will be ECB rate decisions and US inflation data.
We should also see more conclusive talks between the US and China, but the market has already priced this anyway. So unless we see very negative headlines next week, we should be buying on dip from a macro perspective and not fighting the trend.
