I delayed my weekend report as I really could not make much sense of the way market closed last Friday
The strong momentum and rise in advance/ decline data was telling me , that I may me wrong in looking for a market top . The market has been so conditioned to buy on any significant fall and they continued to do the same . From past experiences I also know that this will all end in tears as we have seen this movie many times before . For last week we had one of the best set of economic data released for the US economy in a long time .
For almost 80 % of companies earnings report released in the S&P 500 , 77 % beat earnings estimates. We had a huge positive surprise in Q1 GDP last week . We had a stellar surprise in the jobs report with 263k jobs added in April when the market was looking for 185k . That gives a 12 month average of 218k well above the pre- financial crisis average monthly growth . The unemployment number was 3.6 pct the lowest since 1969 .
Wage growth has been moving up since last 18 months and now sustaining above 3 pct . Also we had huge positive surprise in productivity. Higher productivity is deflationary and hence the low inflation and better economic growth . How Goldilocks more can we get .
But there are big headwinds ahead of us with deficits, recession and political uncertainty
Will cover all that through special reports later . For now let us stay in the present . As I woke up this morning, I see that Trump has thrown the bulls down from the top of Burj Khalifa . The Dow was down more than 500 points and the S&P 60 points all on the back of Chinese – US trade talks. As I have written many times before this event risk has been the single issue that has created unexpected volatility in both directions in the last 18 months . Unless this is out of the way all other analysis is hostage to any short term trading .
Common sense and the sort of vibes we were receiving from Mnuchin and Kudlow suggested that there will be some agreement that will please all stake holders . But it was not to be . Trump has moved inside the China shop and that has broken a lot of pottery. It is too early to write on the technicals or the sentiments of the markets but assume, there will be something intelligent to write by tomorrow.
On the currency front the biggest move came in AUD/YEN and that is understandable as it is risk off . AUD/YEN is the best currency pair to gauge risk on or off. If RBA lowers rate tomorrow there should be more fall out in AUD.
Be on the pulse.
Author: ©Abraham George, CEO, Founder at AllSeasonsPTL Capital Management Ltd
