Do we get a triple bottom bounce or does the bottom fall out? The week of Dec. 10 – 14 is make-or-break for 2018. Since the late January correction, we’ve seen global economic growth slowing, and North America catching-down to the rest of the world, writes Ziad Jasani.
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Recorded: Dec. 10, 2018.
Duration: 1:37:07.
Through Q3 2018 earnings season the world’s largest corporations told us growth ain’t gonna be great again, and then the most hawkish central bank globally (U.S. Fed), all but admitted we are at a growth cycle peak.
Growth slowed and inflation did not arrive at the pace expected during the now deceased global synchronized growth regime (mid 2017 – Jan. 2018), leaving central bankers with a policy deficit; they left rates too low for too long, and then took them up as global growth was slowing.
This forced equity bulls to blink and markets corrected in Red October 2018. The correction was a vocalization of the mismatch between monetary policy, the growth outlook and the dependence on debt to grow (for governments and private corporations alike).
Red October added strength to the USD as investors sought a safe-haven, which in turn exacerbated the pressure on risk assets (especially Commodities and Emerging Markets).
Since then, central bankers have had their very own blinking moment, which at minimum put a temporary ceiling on government bond yields.
Investors used Fixed Income and Defensive North American Equity sectors as a home during this process of beta-lowering portfolios (the reduction of exposure to asset classes more sensitive to growth).
We are now left with structurally elevated volatility, a tarnished growth outlook, and excess of Fixed Income paper being pushed into markets and the long-term equity bulls hoping that a rabbit gets pulled out of the hat to keep markets afloat into year’s end.
The writing is on the wall.
The Global Equity Market (ACWI) broke trend this summer (above), and broke its consolidation pattern through Red October.
North American markets are barely, but still, holding at the bottom of their consolidation patterns and need central banks to flipflop to dovish, while politicians remove their self-imposed impediments to global trade. The week ahead is the last chance for such things to happen for 2018.
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As detailed breakout charts: U.S. Treasury yields have peaked yet TLT is still bound by a long-term down-trend.
The USD is expensive with little room to rise while the euro is attempting to make a higher-low and suppress the USD.
Gold is “on the cheap” and bouncing up off the bottom of a long-term basing pattern validating a better chance for the euro to break its down-trend and for the USD to make a cycle peak.
Oil has broken trend, confirming a growth and supply problem, but it is coming into major long-term support zone where bounces occur more often. The setup from these macro-variables supports a short-term relief bounce for Equity Markets Globally, and strength in Commodity-Laden Currencies.
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