While US equity markets are down a few percent in the last few days, commission-takers and asset-gatherers are out in force to reassure the American investing public that plunging global economic data is not a problem (US ‘healthy’ – have you seen unemployment rates?), a collapsing Yuan and EM currencies is nothing to fear (The Fed is hiking ‘for the right reasons’ and our banks have ‘fortress balance sheets’ this time), the most systemically important banks in the world are crashing (transitory – yield curve will steepen as inflation rises and tax cuts and… breathless), and trade wars are not a worry (Trump’s just posturing, ‘art of the deal’… and besides ‘earnings’ blah…).
Well, not everyone is buying this utopian vision of America’s port in a storm. As former fund manager Richard Breslow suggests “enjoy all the happiness for as long as it lasts.”
When so many things seem so downbeat, it’s a tribute to the human spirit that almost everyone I’ve heard from today has some upbeat spin on things.
Europe is having yet another “make or break” summit…
emerging markets continue to get caned…
Italy’s much anticipated BTP auction was met with a tepid reception…
Chinese equities and the yuan keep sliding away…
and the RBNZ sent the New Zealand dollar to a two-year low.
And yet everyone is happy. I sincerely applaud their resilience and completely understand the cynicism of so many of the people calling the shots.
But I have a theory. And it doesn’t reflect well on the notion of how markets reflect reality, absent distortion from central banks.
Things don’t look great in Europe? Yes, but we got close to support in the euro at 1.15 versus the dollar so it must be a buy. And therefore the story line inevitably shifts toward that for this morning the migration crisis will pass with everyone learning to get along happily. Populism is just a passing fancy. Another day, another fantasy.
Asian and European stocks are down but, hang on, the S&P 500 futures are at their support line at 2700 so there is little to worry about. Where can it go? Didn’t we prove just the other day that we figured out where the new reaction function line in the sand is? Risk on it is.
I’ve even been treated to the notion that, external debt denomination notwithstanding, emerging market currencies are doing just fine if you go back and pretend they are measured against something no one in the real world does.
Besides, they’re far away. And why should their problems spoil our mood? It’s a beautiful day in New York, if you ignore the rain and temperature.
I certainly don’t begrudge the market needing a mental-health day. I’m scheming to have an unplanned one myself. Today’s moves are what they are and I’m prepared to go with the flow. It’s a day to be a follower, not a thought leader. But keep a launchpad view of sovereign bond yields open so you remember it’s just for a trade.
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