Analysts at Rabobank noted the amount of risks out there and challenge the markets thinking after a risk-on day overnight.
Key Quotes:
“Equities rallied hard. In China that was almost certainly because the government stepped in behind the scenes to show just how much confidence they have in a future economy free from government control. Elsewhere the reasons for the relief rally were”¦twelfty. Those buying this dip are shrugging off the fact that central banks are clear on one thing: rates are going to continue to go up for now.
- The Fed’s Beige Book didn’t talk about wages but did talk about a red hot economy;
- The BoC hiked this week and said more to come;
- The ECB made brief mention of the fact that recent data hasn’t looked good, but is still set to carry on regardless; and
- Turkey opted not to hike, but that might be interpreted less positively given the prevailing pressure on most EM.
In short, the classroom answer that risk should now be on again because rates will stay low, and a central bank put remains in place are not prima facie to be taken seriously.
Then we turn to trade. The war there is only just starting, and yet apparently now is the time to get back in to markets(?) Yesterday and today, the WTO is seeing major economies, ex-the US and China, discuss reform. As numerous sober commentators note, the topic of discussion is how to get China to reform its economic model before the US decides to simply walk away from the institution entirely. And this is risk on?!?! Apparently, yes.
We also had a recently retired US general publicly say that it is very likely that within 15 years the US and China will be at war. And yet this engendered no market response. Neither did this week’s survey showing 46% of serving US military personnel expecting a war within 12 months.”
Share
