Latest net foreign inflows to U.S. markets came in the highest on record as incoming data suggests U.S. economic growth to accelerate. The Russell 2000 and the junk bond market also appear to be stabilizing.
Today’s market promises to be one of those nice global central bank-driven rallies that we have become accustomed to seeing in recent years. The Chinese central bank is the main driver today, though positive commentary from Mario Draghi is also adding to bullish sentiment.
There is now a very interesting initiative on the Swiss ballot, which will require the Swiss National Bank (SNB) to hold 20 percent of its reserves in gold. The voters will decide on November 30. I won’t predict the vote, but I want to discuss the likely impact of a yes vote.
The Latest Conference Board Leading Economic Index (LEI) for October is now available. The index rose 0.9 percent to 105.5. September was revised downward to 104.3 percent (2004 = 100). The latest number came in above the 0.6 percent forecast by Investing.com.
Following a 5-month stint in positive territory, the HSBC Flash China Manufacturing PMI shows Output contracts for the first time in six months.
There is plenty of data out today and it is generally reinforcing our three many thematic points: divergence, weak commodities, especially energy, and the slowing of the Chinese economy. This is helping the U.S. dollar and global bonds, but weighing on equities.
The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out.
Today’s housing data was broadly mixed, with Starts coming a shade below estimates and Permits a tad above consensus levels. The Starts weakness was primarily in the multi-family (or apartment buildings) category, which tends to be volatile on a month-to-month basis.
The US stock market has displayed a strong rally off the October lows and has seasonal tailwinds at its back. However, near-term caution may be advised since we are starting to see some negative divergences in market breadth and the credit markets, suggesting a pause or pullback may be in the works.
For nearly a few centuries, the northern Atlantic was the center of the world economy. This era is over. It has been over for some time. Since the early 1980s, more goods cross the Pacific than the Atlantic. This is a crucial development in our lifetime.