Pressure is building. That opening sentence sounds ominous. Let me rephrase – The market is feeling some pressure from a variety of quarters, but not the quarters that truly matter, at least not yet.
- A persistent sell-off in bond markets left financial market confidence in short supply on Thursday, with stocks lower globally and not even traditional safe havens like gold and the Swiss franc providing much of a refuge.
The above seems somewhat irrelevant at the moment, given the low yields of bonds over the last six years or so, but it could matter, if yields on bonds rise too high too fast, as many businesses rely on debt to get through the day.
- German 10-year Bund yields, the benchmark for European debt costs, rose to 2015 highs, dragging down the region’s share markets sharply on fears the higher borrowing costs could hurt economic growth and profits.
Growth and profits are the mainstay of the market, true, but for now, the rout in the bond market is only producing speculative fear, rather than an actual drop in business growth or business profit.
- Currency traders watched the euro burn past $1.13 to a five-month high as the dollar lost its overnight swagger. That took the euro’s surge over the last two days past 3 percent and with 10-year Bund yields testing 1 percent.
The euro has lost a bit of that “burn,” but the whole bond thing is putting pressure on currency markets, which does bleed over into the overall market. As to the dollar, all that jabber about it hitting highs above 105 are gone, as is the talk of parity between the euro and the US dollar. The US Dollar is currently trading in a tight range in the 95 zone.
- After a 4 percent jump on Wednesday, Greek shares fell 2.75 percent as uncertainty clouded the country’s hopes of clinching an aid deal with euro zone creditors in coming days.
My bet is that Greece will clinch a deal, a deal it will not like, a deal Tsipras will have to sell to those who voted him into power, but a deal nonetheless. In either case, the market is clearly feeling pressure from the Greece saga, even if the outcome is truly irrelevant in the longer term.
- With global risk appetite waning, emerging markets were back under pressure.
This is something to keep an eye on, as the pressure mounting on the Russia/Ukraine conflict is spilling over into the bond markets of emerging markets in Eastern Europe. My guess is that Putin will rein this in as more sanctions are threatened, or, possibly, actually enacted.
- Eastern Europe too was hit hard as threats of more EU sanctions on Russia as fighting flared again in Ukraine compounded worries about turbulent euro zone bond markets in Poland, the Czech Republic and Hungary.
So that is the list of worries for the market and the pressure that is there, which helps explain the market’s retreat from yesterday’s gains. Consider as well, underneath the above runs the Fed current, and the betting on that is that the Fed will delay raising interest rates at least until September to avoid adding to the pressure from rising rates in the global bond market, but maybe not …
Onto another topic of interest, the US consumer market. Given all the pressure mounting on the market from outside the US, putting the Fed aside, one should wonder if pressure is mounting on the inside, say, in consumer spending on discretionary items.
- Investors in consumer products realized 3.6 times their investment in an average of 4.4 years, according to the Angel Investment Performance Project (AIPP) from the Kauffman Foundation.
The above suggests direct investment in building companies is a good thing, which would then suggest indirect investment in the consumer products markets would be a good thing, which also suggests that US consumer discretionary spending is healthy, which is a good thing, given that …
- The United States is the largest consumer goods market in the world – worth more than $400 billion. Consumer and retail accounts for roughly 20% of the US economy.
My point is, even with all the outside pressure, the US economy is still chugging along, and when it comes to the world, as we have seen in the last six years or so, the US economy can stand on its own. So, nobody panic just yet, as the pressure is not pushing toward a boiling point just yet.
As to cooler things in the world, well, just look to the US for some of that.
- Scientists at Massachusetts General Hospital (MGH) in Boston have grown the first bio rat limb with veins and muscles.
- Yahoo sealed an exclusive deal with the NFL to stream live and for free a game between the Buffalo Bills and the Jacksonville Jaguars on Oct. 25.
Real replacement limbs and the first-ever streaming NFL football game suggest that no matter the market pressure, innovation and progress do not pay attention. Things just keep moving along.
Trade in the day; invest in your life …
