After two days of back to back triple digit gains in the Dow for the first time since the election, overnight the torrid rally has faded, with European shares and U.S. stock futures little changed ahead of Trump's big unveil of his much anticipated tax cut plan as investors seek new impetus for a flagging relief rally.
"What we’ve had so far this week, I know it’s only Tuesday, has been a repricing without the benefit of meaningful price discovery along the way. Gaps during the Asia-Pacific opening are one thing. Ones followed by flat-lined price action suggest order books emptied followed by “So what do we do now?” And if there isn’t a quick follow-through in momentum, the next question will be “What have we done?”
With the French voting stations open until 7pm, and the first exit polls due just after 8pm, here is a simple matrix predicting how the Euro will respond once the results start trickling in, together with event probabilities, according Citi.
Global markets were oddly calm on Friday, the last day of trading before the first round of France's closely fought presidential election, with European stocks posting modest declines ahead of Sunday's main event, Asian shares rising, and set for first weekly gain in the past month, while U.S. futures were unchanged.
"We have been structurally bearish on sterling for the last two years but are now changing view. We are closing out all our bearish FX trades. We intend to review our sterling forecasts in coming days."
S&P futures extended their Wednesday decline, dropping in the overnight session with banking shares in focus ahead of results from JPMorgan and Citigroup. European stocks likewise retreated along with the dollar, while Asian shares were mixed.
If ever the markets needed a long weekend it’s right now. And if liquidity conditions and the anecdotal lack of interest in new positions are any guides, traders have been heading for the hills all week. Still, there are some lessons to be learned from the past few days, so it shouldn’t be a total loss.
With this backdrop of weakening underpinnings of the “Trump Trade” but exuberant hopes of a continued bull market run comes the potential collision between markets. It is highly unlikely that bond bulls and stock bulls will both be right.
With 2017 EPS expectations at 2017 lows, 2017 GDP expectations at 2017 lows, and real bond yields at 2017 lows, it should hardly be surprising that 'hard' economic data has collapsed to its lowest level in over a year. What should be surprising is the equity market's desperate clinging to 'soft' survey data's high hope levels...
"This bubble is on par with what we had in the States back in ’05, ’06, ’07. We have to actually take a look at the situation. The housing market here is in a classic price bubble. If you don’t acknowledge that, you have your head in the sand."