US Equities Roll Over On Earning Woes

The State of Affairs in Financial Markets

The narrative in financial markets is quickly evolving from a state of relative stability on lingering positives from an anticipated deal between the US and China on trade, towards the cruel reality of the cyclical macro risk-off trend established in US equities since last year. The disappointing earnings by Caterpillar and Nvidia, the former seen as a bellwether of the global industrial sector, comes to show that US companies were not immune to the Chinese trade tariffs.

Not only we see G10 economies, with the US the maximum expression, suffering from late economic and business cycles, but the Sino-US trade war has exacerbated, if anything, the underlying weakening trends in economies such as the European Union, the United States, and especially in China, with the domino effect expanding elsewhere. I focus on these three countries in particular as they account for most of the globally generated growth.

The temporary re-opening of the US government after a record-long shutdown should really be perceived as a short-term risk removal but far from acting as a catalyst to influence market movements for a protracted period of time, as clearly seen by the price action in equities on Monday.

The concurrent negative outlook in China by heavyweights such as Caterpillar, NVIDIA, Apple, and the list goes on, is the byproduct of an economy that is walking a tightrope with clear symptoms of a slowdown. There is an excessive reliance towards China, which is no surprise as the country has single-handedly orchestrated over ½ the global growth in the last decade.

In FX, the USD continues to trade on the backfoot after an off the cuff massive sell-off last Friday, in which no single driver could be attributed. The Aussie and the Kiwi have been well supported in light of the weakness seen in the US Dollar. One currency that remains relatively cheap if risk-off were to pick up further is the Japanese Yen, which has corrected a decent portion of its Dec-Jan rally. Wherever equities go, the Yen crosses will most likely follow. The CAD traded offered as Oil came under pressure.

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The Daily Edge is authored by Ivan Delgado, Head of Market Research at Global Prime. The purpose of this content is to provide an assessment of the market conditions. The report takes an in-depth ...

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