2020/06/15 Commentary: Colossal Cross Currents Complexity
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COMMENTARY: Monday, June 15, 2020
Copyright CNBC 2020 All International Rights Reserved
Hypervolatile price swings in US EQUITIES seem to be justified by the flip-flops in major ‘macro’ factors. And those will continue to buffet the markets.
Yet over the near-term they are becoming more nuanced; complexity is also becoming as colossal as the major factors in a very critical market phase. And that complexity means this is a more extensive Rohr-Blog post than we have published for a while in order to delve into those subtleties.
The question that hangs in the balance is whether the US EQUITIES rally extension two weeks ago was the ‘real’ trend, or just a near-term upside ‘aberration’ in a bear market rally? The answer to that question will not just be critical for the next major US EQUITIES trend decision into this summer.
Whether there is a general ‘risk on’ or ‘risk off’ psychology will also be very significant for the GLOBAL GOVVIES. Note their sharp recoveries in the past week on US EQUITIES weakness after those same GOVVIES were the weakest they had been in a while on the early June US EQUITIES strength.
And to the degree GLOBAL GOVVIES did not fail below key lower supports, they had already continued to hint at more economic weakness to come. While recently strong EMERGING CURRENCIES had eluded any return of a ‘risk off’ psychology into the middle of last week, Thursday it returned for the first time in several weeks.
Major Cross Currents Already Reviewed
As to our previous broad range of analysis last week, Friday’s ‘And So It Goes’ research note communicated that we had already reviewed the major areas of concern outside of specific COVID-19 developments. This included Monday’s ‘Social Shift or Just a Blip?’ research note exploring whether prominent US anti-discrimination protests were encouraging a significant political change into the November general election.
It was followed by Wednesday morning’s ‘OECD Rains on Friendly Fed Party’, which shared OECD’s very downbeat World Economic Outlook prior to the FOMC announcement and Fed Chair Powell’s press conference (https://bit.ly/2XSw2mU.) Therefore it was already the case that the OECD had set the table in a major way for Powell to be less than optimistic (https://bit.ly/3hg8mAz.) As we had observed Wednesday morning, the third OECD page panel includes the graphic (and link to animation) on just how weak the global economy is going to be even without any COVID-19 resurgence (with much more from many other OECD links.)
Fed Communication Disappointment
What was clear even from later Wednesday (i.e. prior to the Thursday US EQUITIES debacle) was US EQUITIES disappointment with Powell’s downbeat view yet with no further immediate stimulus. Hence Thursday’s research note title (ostensibly the question from US EQUITIES to the Fed) ‘So, What Have You Done For Me Lately?’
As we noted Wednesday morning, insofar as the US EQUITIES were entertaining potential for a push through higher resistance they are “...vulnerable to hoping the Fed will also announce some additional stimulus this afternoon…” Once that did not occur, the psychology became stale. After the US EQUITIES sharp selloff back to lower major support (more below), they as well as other asset classes are left with a critical psychology into this coming week.
And on top of all that was news out of Wednesday into the end of last week on rising COVID-19 infections. That last bit may be the most toxic of all in the context of various ways it might undermine the US economic reopening. However, this is another area where the news is not completely clear at this time (more below.)
Multiple Major 'Macro' Factors
These cross currents are indeed colossal insofar as a US political change along with how the stabilized economic situation evolves after various US and other government support programs lapse, and also the path of progress against COVID-19 contagion, all have potential to foster agony or ecstasy on the US and global economy and markets. We are therefore especially watching US EQUITIES.
Yet the manner in which the macro factors are evolving across all of these fronts is becoming more complex, and requires nuanced analysis. First are COVID-19 issues, where rising infections have elicited heightened concerns. There are three critical factors, the first of which is at least so far this does not appear to be a resurgence in the hardest hit areas like the US northeast corridor. There is also the consideration of states which avoided significant infections in the original ‘first wave’ are now seeing them rise… likely more so a first wave extension.
Cumulative COVID-19 Concerns
And governors of states anxious to reopen are rightfully pointing out that the major increase in testing was bound to uncover higher levels of infection. This is all fine and good. Yet as we have noted previous, a heavy splurge of unprotected (i.e. sans masks and social distancing) activity in many precincts around the US Memorial Day holiday leaves this coming couple of weeks the horizon for when greater infections based on renewed contagion could be the case.
We shall see. As of this weekend there are 21 states which are showing seriously heightened levels of COVID-19 infection. Those especially include the southwest (Texas and Arizona) and west (California.) Yet pandemic infection and hospitalization problems are as bad or worse elsewhere.
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