Updated: Mar 3
Earlier this week there were reports circling the global financial news wires suggesting that equity markets were about to rise sharply. This was based on optimism that the US and China are about to come to a truce over the trade tariffs that have been holding back markets for months. Adding to this were comments that the global economy, reportedly heading for recession, had turned a corner with bullish data releases from both China and the US late last week. Yesterday morning German manufacturing data rose considerably more than analysts had predicted and the announcement this morning from Chinese officials that “tariff cuts will be phased out as the deal progresses” have all added fuel to the idea that markets might rally!
Quotes we have seen this week from a market analyst “Bullishness feeds on itself to drive risk assets higher” and “Momentum builds off-the-back of trade war progress” help to clarify these views.
So why the optimism?
Consensus on the global economy has remained subdued for some months, in fact you could go back to this time last year when equity markets were in melt down on fears that the US economy was stalling sharply and that the US Federal Reserve Bank had increased interest rates too quickly.
Since then the US and China have been fighting a “war of attrition” over import tariffs, which appears to have affected all economies and benefitted no one. This has cast a shadow over the investment world, forcing money into safer bond markets and other lower risk asset classes and away from the equity markets. With this negative back-drop and other geopolitical pressures one might appreciate why sentiment has hardly been optimistic. However, in the last few days, as previously mentioned, macro data from various regions across the globe have started to show some positive signs of a recovery and financial markets have started to price this in.
Markets will try to pre-empt what might happen as investors start to take the risk of stepping back in to the equity markets for FOMO (fear of missing out) on any rally that might be on the way. If, as we have been reading, the US and China get their act together and do the decent thing by agreeing a deal, plus the closure at last of a Brexit deal for the UK, then you might see a rally in global markets. With some markets already trading at all-time highs, there might not be any strong resistance to a decent rally in the short term!
This chart below shows how the broad based, SP500 has broken through recent resistance levels and in to “all time high territory”
The recent change in sentiment is good news for investors, however as always, nothing is ever certain in the financial markets and investing in equities is always a risk!
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