Traders on the NYSE clapped and cheered when the closing bell sounded on Friday as though a couple of green closes somehow made up for the outright chaos that’s reigned throughout the month.
Oil may technically have entered a new “bull” market and the yuan may have momentarily stabilized, but a quick look at the fundamentals for crude and the backdrop for the global economy suggests any respite will be fleeting.
Echoing that sentiment is FX trader Mark Cudmore who is out this morning warning that while the blizzard of 2016 may have come and gone, markets are likely just in the “eye of the storm.”
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From Mark Cudmore, writing for Bloomberg
While the worst of the U.S.’s epic winter blizzard has officially passed, it’s less likely that the storm in financial markets can also be said to have ended.
- Thursday’s rally continued strongly into the weekend close, resulting in most global assets recording a positive week. But once analyzed in the broader context, it seems likely this may only be a bear-market bounce
- Bear-markets often provide the most extreme moves in both directions because lower risk-appetite reduces liquidity on both sides of the market. Also, technicals gain supremacy over fundamentals which loosens anchors to “value” and encourages out-sized reactions to any changes in sentiment
- Technically, there is little out there for bulls to cling to. While oil may now officially be in a “bull” market after its biggest two-day rally in seven years, it is still down 12% year-to-date and firmly in a medium-term downtrend. That applies even more clearly to other important commodities, such as copper
- Likewise, across longer-term charts for stock markets, emerging-market currencies and high-yield credit, the recent bounce is barely noticeable. And the risk-barometer that is EUR/JPY closed below the critical 200-week moving average for a second straight week
- Fundamentals didn’t drive this year’s weakness, so it will be harder for positive fundamentals to prompt a recovery’’
- Perhaps the two most significant supports for the market have been that the Chinese yuan stabilized and the European Central Bank indicated that further monetary easing is imminent. But both of these are arguably reactions to negatives rather than genuinely new positive drivers
- The relief rally probably has more to run but it’s hard to believe the worst of 2016 is behind us. And there are even reports that Storm Jonas may crop up again in a couple of days – on the other side of the Atlantic
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As a reminder, this is still the 2nd worst start to a year ever...