Hey everyone! What a finish the week we’ve just had! At Thursday’s close it looked like the markets were heading for another solid week of gains and then Friday rolled around and BAM! Markets Freaked! Why? Well the Bond markets showed us why they are really in control of where Equities want to go.
This week’s Sound-Bites:
• This past week the Bond Markets moved to center stage, but not in a good way for Equities when the 3s/over 10s inverted on Friday putting a bit more worry on the table…we have seen data from all across Europe (PMIs contracting at fastest rate since 2012 and the German 10 Yr Bund feel below zero for first time since 2016) and slowdowns in Chinese markets (Debt loads rising)…This spread between the 90 day T-Bill and the 10 Yr US Treasury has inverted before but markets moved higher for another 6 to 18 months before moving into a recessionary environment…
• Last year the FEDs raised rates perhaps a bit faster than needed since they saw very strong growth in the Economy, yet the abrupt Policy shift made on this past Jan 4 indicates they made a mistake and are now on track to sit on the sidelines regarding possible 2019 rate hikes… and now at the end of close the probability of a Fed Rate Cut by this Dec has moved up to about 58%, which is almost a double from the previous week…But the Feds are not alone in Policy U-Turns – 2 weeks ago the ECB saying it would launch new stimulus to support the eurozone economy via cheap loans for banks while saying they will keep its key interest rates at a minus 0.4%, at least thru 2019 sends signals to currencies and bond markets globally…
• On the plus side we did see the LEI (Conference Board Leading Economic Index a measure of 10 Economic indicators including the Yield Curve) rose in February though the pace was slower than previous releases indicating slower growth as we move through 2019…
• With Q1 Earnings coming up in a few weeks we could see companies lower their forward guidance a bit more than usual and thus lower the hurdle rate they need to hit but in doing so could cause market price action to move a bit lower as we move thru Q1 Earnings Season…
Now enjoy my video update with our Weekly Round-Up
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