Stocks set to be foiled again

Investors aren’t looking a gift horse in the mouth, but perhaps they should

Investors aren’t looking a gift horse in the mouth, but perhaps they should

On the first day of the quarter, investors are not looking a gift horse in the mouth after Chinese manufacturing returned to growth ahead of another round of U.S.-Sino trade talks. The encouraging fillip helps continue unwinding the yield curve ‘inversion’ that chilled sentiment recently.

The message from debt markets contrasts with stocks. 10-year Treasurys yielded 2.48% earlier, above a 2.338% 15-month low from last week, but below rates seen before the inversion. The Fed bears partial responsibility after scratching all possible 2019 hikes at its last meeting. Still, policymakers downplay recession risk, yet rates markets project a 0.25% cut in 2019.

Further data and events this week should bring some clarification.


Source: Refinitiv/City Index

After shrugging off soft retail sales and extending gains on solid manufacturing prints, stocks can benefit more from additional positive readings. Further out, what if a slowdown really is off the cards? Fed funds may price tightening back in. Recall volatility unleashed by rate anxieties last winter. And note that best-case trade scenarios appear largely priced already. Conversely, disappointing data would help corroborate the inversion signal. Even if The Powell Put and easy policy elsewhere keep a lid on volatility, stocks wouldn’t escape entirely unscathed.

As markets creep back near emotionally charged highs, the challenge of regaining and sustaining them shouldn’t be underestimated. Dow Jones futures contracts are eyeing the 26265 high from 8th November. After touching the level then, futures fell 18% before bottoming on Christmas Eve. The best they’ve achieved since was 25th February’s 26238.

E-mini Dow Jones Futures – 120 minutes [01/04/2019 18:59:40]

Source: Tradingview/City Index

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.