The overall market gave mixed signals this week and the currency devaluation race has started.
- On Tuesday Mario Draghi (ECB President) gave a clear message of going even lower on rates if inflation fails to raise to the ECB’s target.
- On Wednesday, Fed Chair Powell now pivoting from hawkish to dovish, seemed open to rate cuts as early as July, which sent stocks higher. As a reminder, the Fed is so versatile that only in December they were talking about four, not one but four more rate hikes, while the bond market was already signaling a slowdown of economic growth.
- Although the main trend of bond yields remain down, today, mid to long term bond yields are rising, while short term yields keep plummeting. The stock market has what it wanted all along: a dovish Fed. But what matters more than being dovish, is the timing for the next cut and the size of it.
- Gold continues to rise, which also signals that as the stock market continues to trend up, investors still may be wary of what is to come. The big question here is what’s really coming? So far leadership in the stock market, gold and yields are expecting a very different outcome than equities.
- Today, factory output numbers showed the US has further decelerated along with a number of economies around the world. This worries central bankers and increases the possibilities of a rate cut next month. The Purchasing Manager’s Index (PMI), an indicator that measures the health of manufacturing and industrials, “declined to 50.1 in June, the lowest level in nearly a decade.”
To summarize, the market seems to be an ideal place for short-term traders. We are hesitant to lay out all of our cards on the table, as we have yet to see whether this uptrend will play out and remain in place throughout the summer. We remain bullish mid and long term S&P500 and Nasdaq Composite.