It's always a massive risk to pre-announce end of stock market rally, but this week at least technically we will have several tests of support which is (or not) harbinger of risk off.
Our core macro theme remains the same:
- Recession is 60 pc likely in the next 18 month (credit impulse & wrong central bank policy)
- Weaker US dollar (A must in dollar driven debt binge..)
- Lower energy prices ( environmental focus, electrification and peak demand in oil)
AND a new one:
- Outperformance of Japan vs. G8 and renewed strength in JPY (This will be separate Steen's Chronicle report)
The geo-political risk is piling up:
- Qatar deadline is imminent
- North Korea testing long range missile increased odds and need for US the respond
- G-20 (Trump can end up isolated, totally, vs. rest of G-19)
- Saudi-Arabia (King not attending G-20!)
There is also ample data & central bank chatter to confuse the picture:
- FOMC (Minutes tonight, Balance sheet reduction from September, inflation undershoot)
- Yellen's semi-annual testimony to Congress July 15 & 16th
- Non-farm on Friday……
Meanwhile our global credit impulse continues to fall – this is our new gauge made by our global macro economist Christopher Dembik:
These are the charts to watch (among others)
MSCI World – support line and negative MACD
NASDAQ 100 E-mini Futures – Massive support just below 5540/45 needs to hold
Peter Garnry did trade recommendation on June 28th: US Technology stocks looking heavy
The Euro STOXX 50 Future
Samsung Electronics Company (Samsung is 10 pc of the 17 pc total annual earnings growth expected in MSCI Asia – ex. Japan!)
This is from today's Bloomberg
Samsung, in particular, is forecast to report 69 percent earnings growth for 2017. Because of its heavy weighting, the South Korean maker of smartphones and semiconductors alone accounts for more than 10 percent of the 17 percent growth expected out of MSCI Asia ex-Japan stocks this year.
Samsung reports July 7th (Expected earnings growth of 67%)
Conclusion:
We have zero idea or "hope" of timing peak in stock market – if anything the last decade has taught us that central banks turns very dovish when we hit this kind of support in the market –
We have no illusions and neither should you….. Central banks claims to target growth, employment and inflation but in reality the stock market is their main and only indicator.
The rise of the stock market is the one key success achieved through easy money, and despite their strong talk of "normalization" the reality is something different, namely more weak growth and many years of dis-inflation pushed by wrong business model (expanding growth through credit rather than productivity) and a tax on real investment (non-financinal)
The Goldilock narrative told by central banks is not serious hybris but also exactly a narrative – a story – the economic reality is that majority of recessions has been started by tighter monetary policy. China started this trend (China always leads), the US now follows and ECB & BOE follows up.
Meanwhile inflation is undershooting and global credit impulse collapsing – this is now a matter of when not if, but it's summer…..
Safe travels,
Steen Jakobsen
Med venlig hilsen | Best regards
Steen Jakobsen | Chief Investment Officer
Saxo Bank A/S | Philip Heymans Allé 15 | DK-2900 Hellerup
Phone: +45 39 77 40 00 | Direct: +45 39 77 62 23 | Mobile: +45 51 54 50 00
Research: http://www.tradingfloor.com/traders/steen-jakobsen
Please visit our website at www.saxobank.com
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