Short Comment
US Equities have shown the great volatility recently with inconsistent attitude of US President Donald Trump about trade-war between the US and China. The volatility is being the best news for safe assets including US Treasuries. The securities have enjoyed bull market, even after Mr. Trump eased the tightness with dovish twitter messages about China. Yield of 10year US T-Note is being transacted under 1.5% now.
I believe the fundamental of global stock market is very fragile at this point. US stock market could endure Mr. Trump's hostile twitter message about China if it had the status of June to July when S&P500 touched 3,000pt. It failed to endure it and there are several signals announcing weakening stock markets. Yield spread between 2year and 10year US T-Notes has been recording negative number. Mr. Trump and Chinese President Xi do not have the intention to yield to each other in the negotiation. Market participants had expected that US Federal Reserve could lower its policy rate by 75bp-100bp in this year, but the institution made it sure that it does not lower the rate by that much in this year.
US Equities have shown the great volatility recently with inconsistent attitude of US President Donald Trump about trade-war between the US and China. The volatility is being the best news for safe assets including US Treasuries. The securities have enjoyed bull market, even after Mr. Trump eased the tightness with dovish twitter messages about China. Yield of 10year US T-Note is being transacted under 1.5% now.
I believe the fundamental of global stock market is very fragile at this point. US stock market could endure Mr. Trump's hostile twitter message about China if it had the status of June to July when S&P500 touched 3,000pt. It failed to endure it and there are several signals announcing weakening stock markets. Yield spread between 2year and 10year US T-Notes has been recording negative number. Mr. Trump and Chinese President Xi do not have the intention to yield to each other in the negotiation. Market participants had expected that US Federal Reserve could lower its policy rate by 75bp-100bp in this year, but the institution made it sure that it does not lower the rate by that much in this year.
The participants are contracting their expectation for the markets based on those factors. Berkshire Hathaway, Warren Buffet's investment holdings, started selling their equities. Insiders in Corporate US started to sell their shares on the companies. FAANG, the pack of US best Tech companies, is failing to recover shareprice of its peak. A degree of S&P500's recovery on August 26 was less than half of that of its plunge on August 23.
Even though some Research Analysts are suggesting the stock markets entering the bear market, I believe that the markets have the upside yet. In the history, negative yield spread between 2year and 10year US T-Notes had needed 18months to bring the plunge to the stock markets. Of course, the progress could be different this time, but economic indices in the US are good enough, no needing the radical down of the policy rate. The proceeding trade-war could make the recession realized faster than expected, but plunging market interest rates in the US could offset the effect of it. Market consensus about performance of the companies is low enough, so there will be no earning shock in the country, like it was during early this year.
The best ground I want to suggest about bullish markets is that a liquidity party is still proceeding in the markets. The liquidity is also being reasons for the lowest market interest rates. The liquidity which US Federal Reserve, European Central Bank, and Bank of Japan have provided to the markets is still full in the markets. The two banks except US Fed will provide additional liquidity to the markets directly in this year. Sluggish macroeconomy in Europe including Germany and strong Japanese Yen are credible grounds I can make in here.
The global stock markets' direction depends totally on the US market, and the US market still has power to run. The liquidity is still playing on the ground and will support the stock markets classified as DM to endure the proceeding concern. Maybe from coming September, the markets could have the last run targeting 3,200pt of S&P500.