Significant divergences and reversals have emerged in overnight trading that suggest changing capital flows and leadership across world markets.
For the last several years, US has been the leading equity market in the world but that now appears to be shifting to international markets. A broadening advance in overseas markets accelerated overnight with Hong Kong rallying 2.5%, Tokyo gaining 1.2%, Mumbai climbing 1.5%, Frankfurt jumping 1.3% and London advancing 0.4%. Recent positive retail sales and other data out of China, more China stimulus talk and movement in Germany toward government debt reform, and plans for increased defense spending have sparked renewed interest in International Equities.
On the other hand, a two-day bounce for US Equities appears to be ending and their previous downward course may be resuming. US index futures are down 0.2%-0.3% this morning, giving back some of yesterday’s 0.3% to 0.9% US market gains. The US Dollar is steady this morning after falling yesterday in the wake of disappointing US retail sales and Empire Manufacturing numbers.
In the US, a battle between investors who focus on liquidity and investors who focus on the economy appears to be brewing. Disappointing economic numbers is often seen as positive by those who look at liquidity as it means the Fed could cut interest rates more this year than previously thought. On the other hand disappointing data and profit warnings are problematic for investors who focus on the economy because it means the outlook for corporate earnings may be weakening.
Tomorrow’s Fed meeting should bring more insight into what the US central bank is thinking. An interest rate change is not widely expected at this point, but investors may look to the FOMC member forecasts for any changes to the dot plot, and also to the statement or press conference for any changes in tone or commentary related to the potential impact of trade wars.
One other thing to note, Gold is up 1.1% today, trading comfortably above $3,000/oz. Bitcoin, meanwhile, is down 2.2% trading near $82,500. This divergence suggests that sentiment among some investors appears to be turning more cautious. In commodity action, Crude Oil is up 1.2% and Copper is up 0.3%.