Removing the Catalysts
Rising equity prices remain the path of least resistance as US indices push to new record highs. The Fed continues to remove itself from the considerations of good/bad catalysts to market dynamics, leaving US-China trade talks as the only factor. Even the impeachment proceedings are far from being considered as material to risk. Indices push higher after each piece of good news on the US-China trade war front (Kudlow's comments), bounce back swiftly on not-so good news, while macro US data makes no difference (more below). Intermarket moves reflect a broadening risk-on climate, as USD and JPY weakness underpins strength in NZD and GBP, and even CAD is recovering alongside oil. How can we extend in this fashion? The Premium video below highlights my updated analysis on the expected limits of the current extensions in SPX and DOW30, with a focus on USDX, EURUSD, USDJPY and GBPUSD.
The chart breakouts in technology, semi-conductors and financials highlight that these industries have led indices over the last 4 weeks, at the expense of typically defensive sectors (utilities and real estate). US 10-year yields remain on a gradually rising trend since Sep 3rd, but not yet posting higher highs in the channel. 1.912% and 109.30 are the required closing levels for the 10-year and USDJPY to lead momentum higher.
US retail sales matched expectations with a 0.3% rise in October, while industrial production fell 0.8%, posting its biggest drop in 10 years. Fed Chair Powell's testimony did everything to confirm markets' positioning of no rate cut next month. The markets-data matrix has entered a confluence where a rate cut is not needed to preserve indices' ascent, considering no new negative developments traspire from the trade talks. But traders will soon require a firm confirmation from Chinese officials about a trade agreement deal instead of one faction of the US delegation or another. Once that's done, the 2nd catalyst is finally removed from the list of potential obstacles. But I strongly expect that a full trade deal will never be realized between the US and China i.e. China will never yield completely to all of Trump's demands.