E Markets: Quicksand

2019 isn’t going to be like 2018. The fear of a recession, the drop in confidence as shown in global PMIs, ongoing political stalemate as shown by the US government shutdown continuing, the threat of a bear market in equities all play out as we start 2019. There is a fear about China growth that permeates the markets today as the PMI there shows more weakness and the usual year-end boom to spend didn’t happen.

There is also a fear about China debt as its growth rate is necessary to support employment and the servicing of corporate leverage. The quicksand fears about debt are rising with the ongoing doubts about the US Fed pausing. Perversely, better US data won’t make any of this better. There is some relief today as many see the ongoing US government closure are hurting real growth and driving the yield curve flatter if not inverting as ugly politics leave little confidence in quick fixes.

Thrashing about in quicksand makes it worse and the US debt story isn’t getting any better either. Growth outlooks are the focus for today and the servicing of debt fears puts any carry trade into reverse. Risk off in Asia followed through to Europe but to a much less panicky start which maybe the best we can get for the moment. Slowing growth makes the soft patch of 4Q seem likely to extend to 1Q but just how much and how bad markets can be remains in the hands of central bankers and politicians. The risk barometer of choice, the JPY/USD is telling us to act slowly to buy any dip and to beware of bulls offering a fast fix to the present quicksand. This makes the holiday there and the absence of the BOJ even more problematic and opens 108.40 then 106.75 into the rest of the week. 

Question for the Day: When does a soft patch become quicksand? Today is about the US and China growth projections into 2019 and the PMI reports behind them. The fear of a European soft-patch leading to an ECB policy mistake continues and spreads to the FOMC and PBOC. There is little hope for a Powell S&P500 put so markets take defensive measures still. The US data this week matters and the ISM will be just the start. Fear of stronger US data making it more difficult maybe something to watch. Soft-patches and quicksand are hard to distinguish. 

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