E Wall Of Worry?

Investors continue to climb the wall of worry. Global equities are back over 1-month highs – erasing the pain of December. Progress on US/China trade talks is the nominal driver. There are, however, plenty of issues blocking a stampede for the bulls. The wall is well understood: 

  • The US government shutdown reaches day 28 – four weeks – with no clear end in sight. 
  • UK Brexit Plan B doesn’t seem to include much new material – making Monday a risk for disappointment – as EU seems less inclined to new talks
  • China GDP revised lower in 2018 and the outlook for 4Q 2018 is 6.4% consensus with some calls for 6.2%

The risk and reward on the day is about the extension of the S&P500 to 2700 and the climbing of the wall of worry based on China hopes. The set up for the weekend and the rest of the month seems strained and the two charts to consider into a cold and snowy weekend are GBP and the S&P500 with both showing signs of a overextension. The data ahead and real news seem set up to clash with the price reactions. This is how bear market corrections work and how FOMO leads to a collapse. 

Question for the Day:Is the rebound in EM sustainable? The drivers for 2019 bullishness have been – 1) Better trade talks between US/China, 2) FOMC pause expectations – as the FOMC rate hike risks for 2019 remain below 20%, 3) Brexit delay hopes after May wins a no-confidence vote but loses her Brexit plan, 4) Better 4Q earnings so far.  All of these points have little to do with the emerging markets but they melt up the outlooks for global growth. Even as the outlooks for the US are marked down.  

This is the relative story with the risk in the next week revolving around China and its growth data. China matters more to global growth and EM growth in particular. Investors maybe buying what they see as “value” but risk a nasty reversal should the US/China talk hopes prove more a truce than a deal. EM funds attracted $3.3bn for the week ending Thursday, according to EPFR Global data, extending the run of inflows for the asset class to 14 weeks. This brings the total flows to the asset class over the past three months to $27.5bn, reversing periods of acute outflows seen throughout the year. EM bonds have also benefited from the change in sentiment. EM bond funds drew $2.4bn for the week ending Thursday, the largest weekly figure since late January last year, according to EPFR Global figures.

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Peter Cooper 7 months ago Contributor's comment

Consumer sentiment that drives 70% of the US economy strongly suggests this is only a bear market rally, see:


This is way more important that hot air from trade talks...

Gary Anderson 7 months ago Contributor's comment

Wall of worry or PPT?