“All Aboard!”

“All aboard!”

This market somehow reminds me movies we used to watch when we were kids where the captain of the ship would shout “All aboard!” and everyone with excitement will cheer. This is exactly what’s happening in this market where despite any negative news or uncertainty, the captain of the “Bulls” is driving this ship to new equity highs for the last few weeks.

Now, there will be market participants which will negate my comment above and point out multiple reasons of why we are seeing such a strong market and explain the moves with a very concise manner. I do share some of those views of course and have in previous newsletters elaborated some of them, what I can’t gage yet is the speed we are pricing in the future good news to near perfection. For disclosure purposes, I am still in the camp where we see more upside across risk assets by year end.

But let’s start from the US where the government shutdown was not avoided and since 2018 this was the first time we have come into an impasse such as this. President Trump along with the Democratic party seem to have a different view in certain aspects of government spending and for now this gap has not closed. The market does not seem to put any uncertainty premium on this matter and if we look at history, the FED tends to take a more dovish stand when a government shutdown takes place. The 10-year US Treasury government bond has tightened this week to 4.1%, around 10bps tighter post the ADP numbers which showed another negative print in the private job openings sector. On the equity side, we kickstarted the new quarter with a very strong price action led by US technology. Investors seem to be adding exposure to the sector as AI partnerships are taking place and there is a strong belief that the increased capital expenditure will result in higher productivity and top line revenues soon. I do think we are in a major evolutionary period that will redefine how a lot of industries work and by default the whole market perspective. It is interesting to see who is going to have the first mover advantage and how that would result in EBITDA terms.

Just to summarize, US stock indices are trading anywhere between 1.5-2% higher on the week with good inflows in equities and outflows from money market funds and Treasuries. In Europe, we are seeing some catch up from recent under performance with both Eurostoxx and DAX trading around 3-3.5% higher on the week. (see table below) EUR USD continues its range bound trajectory in a 1.17-1.18 context with GOLD finishing up the week 2.5% higher. On the rates side, we are rangebound again in a similar fashion to last week with 10-year government bonds trading in the 2.75/2.70% range.