Markets near a major tipping point, just as winter comes knocking
Within minutes last Friday afternoon — following a solid week of 45-degree devaluation, the U.S. Dollar Index ($DXY) rip roared higher seemingly out of nowhere by a deceptively large 1%, indicating immense dollar demand or a major shortage, somewhere deep in the complex, interconnected chasms of the global financial system.
Where and why remained unclear. Market participants hardly noticed the sudden move, because risky assets inversely correlated to the Greenback’s strength — like junk bonds, commodities, emerging market stocks — barely moved. You could almost hear the clusters of tumbleweed bouncing through the New York Stock Exchange’s now-desolate trading floor.
The bears, meanwhile, remained gobsmacked by the market’s surprise reaction to a rapid dollar tsunami, in which leading stock indices like the Nasdaq turned from red to green by market close — even despite its biggest components, Apple and Amazon, both releasing disastrous earnings and plunging 5% the night before.
Positive economic data also arrived during Friday’s market action, giving this risk-asset rally bonanza an extra bolstering. The windy city of Chicago published a warming-to-chilling October release of its purchasing manager’s index, which came in at a cool 64.7, a drop from the previous month, but still enough to point to further economic germination.
Meanwhile, a revised sentiment survey by the University of Michigan revealed a semi-cautious consumer. Its reading of 71.7, though, was enough to beat the Street’s guesstimations.
Fast forward to Monday, and China’s Caixin Manufacturing PMI has advanced from a dormant 50 to an expansionary 50.6, quelling fears of a global recession originating from mainland Asia. So much for an Evergrande-induced collapse escaping the Great Sino Firewall. What did China bears think might happen, in the age of bailout capitalism?
Hours later, we also found out that America will follow its hyperpower rival’s lead: The U.S’s premier PMI, the ISM Report On Business, came out this morning at a near-high of 60.8, way above what Wall Street wonks were expecting. It’s a figure that will now help settle a close-knit battle over whether we’ll witness stagflation or reflation in the future.
As I write this, markets are beckoning what I’m predicting will be the fakest year-end reflation in U.S. history, where panic buying from shortages and a grand global reopening will fuel another expansionary quarter, one that will propel almost every risk asset onwards and upwards for at least the rest of 2021.
By the end of this week, we’ll find out if grossly overpriced tech stocks hold their “gains”, if commodities such as Uranium, Copper, and Crude Oil make new yearly highs, and if crypto markets produce yet another round of newly-minted twelve-year-old millionaires. Maybe even junk bonds, the only asset class yet to join in on this cheap money jamboree, will get an invite.
At this point, with the Federal Reserve’s taper squad asleep at the wheel, market sentiment not so remarkably bullish, and just about everyone with a checkbook willing to #BTFD at the first opportunity, even an asteroid might fail to derail this market’s ostensibly perpetual ascent. For that to occur, in this economic romp of an atmosphere, bears need a Christmas miracle.