When bounces are meant to be sold, you know you have entered a bear market or a dead cat. This is the key lesson for 2018 and it changes the paradigm for passive and algorithmic trading systems. The summer mantra of buying-dips has shifted. The long winter for a number of markets is upon us early.
The $1trn drop in market cap for the FAANG and the sharp drop in oil prices lead the price action of the last 48 hours but not the last 12. The roller coaster of markets is climbing the wall of worry into the US Thanksgiving Holiday. The list of worries remains significant – for Europe you have 1) UK May-Juncker talks, UK Labor opposition to the Brexit deal and ongoing Tory splintering over it. 2) The Italian budget issues come to a head today, with the deputy PM Salvini saying“The League rules out revising the fiscal plan,” but then revises his approach suggesting he is willing to talk after the EU rejects the 2019 budget.
The ISTAT forecast for 2018 growth in Italy was cut to 1.1%from 1.4%, but sees 1.3% bounce for 2019. 3) For the US it’s still about China and the trade war with a new report from Trade Representative Lighthizer’s office accusing China of ongoing IP theft. Throw in expectations for an FOMC hike in December despite ongoing market volatility and risk-off globally. But this is where hope rests for the day with rate policy reactions to the present financial distress not so clear for 2019. The present price action in FX reflects this story and the USD rally that extended yesterday despite the equity/oil rout has reversed a bit today with focus on the EUR remaining central for trading the markets – with 1.1550 needed to prove any sign of real hope for a bounce to become a counter-trend rally.
Question for the Day: Is the OECD too sanguine? The OECD economic forecasts call for a fragile soft landing for 2019. “We’re returning to the long-term trend. We’re not expecting a hard landing, however, there’s a lot of risks. A soft landing is always difficult,” OECD chief economist Laurence Boone told Reuters in an interview. The OECD cut its forecasts for global growth from 3.7% this year to 3.5% in 2019 – that is down from 3.7% previously. The group sees growth slowing the most in non-OECD countries with emerging markets most likely to see further capital outflows as the US continues to hike rates. The OECD cut its outlook for countries at risk such as Brazil, Russia, Turkey and South Africa.
