As the reasons to be fearful in financial markets seem to be growing. We consider the factors impacting on market outlook and what is driving forex, equities and commodities this week.
There seems to have been a sea change in the wake of the sharp move higher on Treasury yields in early October. As markets feared that the Federal Reserve would need to push ahead with tightening monetary policy above and beyond market expectations, suddenly the glass seemed to be half empty rather than half full. Traders have been shaken out of their slumber with a realisation that there is a clutch of reasons to have a negative outlook of markets right now. Even the continued strength of US corporate earnings does not seem to have the bull traction to be able to look beyond it. Perhaps it is because there is a realisation that Wall Street has reached peak earnings and the cycle is now turning lower. Populism is flexing its muscles in European politics. The Italian budget deficit may not seem eye watering at 2.4% but is deemed unacceptable to the EU, whilst bond vigilantes are also having their say. Brexit might seem to be little more than an irritation away from the shores of the UK, but the prospects of a “hard Brexit” are growing as the politicians appear unable to solve the Northern Ireland border conundrum. It seems that it could still be weeks (maybe months) of wrangling ahead to be a further drag on risk appetite. With the US/China trade dispute showing little sign of any improvement, another event looming on the near horizon are the US mid-term elections. Whilst Trump is not directly implicated, they will be seen as an opinion poll on his Presidency. If he is looking for a patriotic boost for voters, expect a foreign policy cheap shot. China, you have been warned.