Where are the rallies? We've been in the middle of trade wars for about 6-8 months now. World equity markets are not happy:
Above are the ETFs that track most of the globe's stock markets. The SPYs are doing well. All the others? Not so much. Emerging markets (top row, far right) have taken it on the chin, falling a little less than 30%. Latin America (bottom row, second from left), China (middle row, second from right) and Brazil (top row, second from right) are also hurting. But no one except the U.S. is doing well. That's a big problem that we should keep an eye on.
So far, the bond market is absorbing the increased supply (from Reuters):
U.S. government debt supply will likely continue to boom, but bond market investors seem to be taking it in stride.
The Treasury Department is having to sell more debt to finance the government’s ballooning deficit, stemming from the massive federal tax overhaul in December and the spending deal passed in February. Still, bond yields have remained in a narrow range, suggesting investors may not be fretting about the swelling debt supply.
Here are the 1-year charts of the treasury market ETFs:
The market sold-off at the end of last year but has since been trading in a range. There has been a modest increase in the TLTs and SHYs of late. The other three ETFs, however, have traded sideways. This supports NY Fed President Williams argument that one of the prime reasons for the low level of r* is the high demand for safe assets:
The third leading factor in terms of a rising r-star is the demand for safe assets. The theoretical argument that, with such strong economic conditions, we should see the appetite for riskier investments increase, pushing up interest rates overall, makes sense. But that’s not what’s played out in the data, at least so far.
As with all things economic, we'll have to wait and see how this plays out in the long-term.
The JP Morgan/Markit Economics Global Activity Index hit a 4-month low:
This shouldn't be surprising, especially as trade tensions continue between the U.S. and, well, everybody. The cease-fire between the U.S. and EU should help a bit, but so long as China and the US are fighting it out there will be downward pressure on sentiment and activity.
Turning to the chart ...
Last week I noted that the lower 280s were providing a great deal of resistance to the SPYs. Today prices blew through those levels and then kept moving higher. Last week, I also noted that on the 30-day chart, prices formed a rounding top pattern and were consolidating gains between the upper 270s and mid-280s. Today priced moved through resistance in the mid 280s to hit a 30-day high.
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