The State of Markets: "Blow-off Top?"
After a markedly strong start to the year, the upside momentum in European equities stalled this week. The German DAX, Spanish IBEX, Italian MIB and European markets, more generally, experienced sharp weakness in the second half of the week. The DAX, for example, was down 1.9% on Wednesday, 0.4% on Thursday and a further 0.3% yesterday (down 1% for the week). Frothy price action, DeMark signals, a Longview SELL-off indicator signal, as well as bearish key day reversals*, all signalled the likelihood of a top. Other markets have also recently been generating ‘near vertical’ price action, including in Hong Kong (the Hang Seng), in the Eurozone high yield corporate bond market (tight spreads) and in gold. Frothy price action is, of course, characteristic of ‘blow-off’ tops.
The key question, therefore, is: Are equities and other risk assets vulnerable to an enduring multi week (or longer) correction? Was last week a ‘blow off top’? Or is the uptrend ongoing (at least for now)? We outline our views on those questions in recent research (which is available below for subscribers, or click HERE for a trial).
This week’s US macro data includes consumer confidence on Tuesday (Conference Board data), durable goods orders (Thursday), and PCE/personal income & spending data for January (on Friday). There are also a number of key earnings reports due this week (including NVIDIA on Wednesday) as well as several Fed speakers throughout the week. Key events in Europe begin with tomorrow’s German election (critical for many reasons including the ‘debt brake’ question). Then later in the week, German IFO is released on Monday; retail sales on Thursday; and CPI for several key EZ economies on Friday. Please see below for a full list of key data & events.
Key chart: Various US/European equity indices (% performance, last 3m, in local currency)
*Bearish key day reversals occur when the index opens higher, makes a new intraday high, and then closes below the previous day’s intraday low. NB it’s a technical price pattern which highlights a likely change of trend (i.e. in this instance, BUYER exhaustion).
Upcoming important data/events this week:
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Events: |
German Federal Election (Sun); market holiday in Japan on account of Emperor’s Birthday (Mon). |
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Monday: |
German IFO business climate (Feb, 9am). |
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Tuesday: |
US Conference Board consumer confidence (Feb, 3pm). |
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Wednesday: |
US new home sales (Dec, 3pm). |
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Thursday: |
Eurozone M3 money supply (Jan, 9am), US GDP (Q4 second estimate, 1:30pm); US durable goods orders (January first estimate, 3pm). |
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Friday: |
US personal income & spending including headline & core PCE (Jan, 1:30pm); US Chicago PMI (Feb, 2:45pm). |
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Key earnings: |
Home Depot (Tues); NVIDIA (Wed); Rolls-Royce (Thurs). |
Key Research
Global Macro Report, 19th February 2025:
“UK: (It’s Always) Darkest Before Dawn”
The drivers of the UK’s ‘old’ economic growth model are likely to fire up/re-start over coming quarters. In particular the BoE rate cutting cycle is ongoing; the private sector is ‘primed’ for looser monetary policy; and there’s plenty of pent up demand for housing.
Housing sits at the heart of the UK growth model, as the key driver of wealth effects and animal spirits As the housing market ‘re-opens’, consumer appetite for spending & leverage should reaccelerate. Critically, the household savings rate is elevated (highlighting capacity for stronger spending), and households’ real, post-tax discretionary cashflow growth is positive this year and next.
Key North American macro data & events:
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Events: |
Speeches by the Fed’s Logan at Balance Sheet Conference (Tues, 9:20am), Barr gives Remarks with a Q&A (Tues, 4:45pm), Barkin on Inflation (Tues, 6pm), Bostic on the economic outlook & housing (Wed, 5pm), Hammack on financial stability at the Research Conference on Bank Regulation in New York (Thurs, 6:15pm), Harker on the economic outlook (Thurs, 8:15pm) & Barkin on inflation (Thurs). |
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Monday: |
US Chicago Fed national activity (Jan, 1:30pm); US Dallas Fed manufacturing sector activity (Feb, 3:30m). |
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Tuesday: |
US Philadelphia Fed service sector activity (Feb, 1:30pm); US FHFA house price index (Dec, 2pm); US S&P/Case-Shiller 20-city & national house prices (Dec, 2pm); US Conference Board consumer confidence (Feb, 3pm); US Richmond Fed manufacturing index (Feb, 3pm); US Dallas Fed service sector activity (Feb, 3:30m). |
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Wednesday: |
US building permits (January final estimate, 1pm); US new home sales (Dec, 3pm). |
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Thursday: |
Canadian CFIB business barometer (Feb, 11am); Canadian employment change (Dec, 1:30pm); US weekly jobless claims (1:30pm); US GDP (Q4 second estimate, 1:30pm); US durable goods orders (January first estimate, 3pm); US pending home sales (Jan, 3pm); US Kansas City Fed manufacturing sector activity (Feb, 4pm). |
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Friday: |
US personal income & spending including headline & core PCE (Jan, 1:30pm); US wholesale & retail inventories (December first estimate, 1:30pm); Canadian GDP (Dec, 1:30pm); US trade balance (Jan, 1:30pm); US Chicago PMI (Feb, 2:45pm); US Kansas City Fed service sector activity (Jan, 4pm). |
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Key earnings: |
ONEOK, Public Storage (Mon); Home Depot, Intuit, Bank of Montreal, Bank of Nova Scotia, American Tower, Workday, Sempra Energy (Tues); NVIDIA, Salesforce lnc, Lowe's, TJX, Synopsys, George Weston, Monster Beverage (Wed); Toronto Dominion bank, Dell Tech, Canadian Imperial Bank, EOG Resources, Autodesk, Vistra Energy (Thurs). |
Fig B: US Conference Board consumer confidence (index)
Key European macro data & events
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Events: |
German Federal Election (Sun); Bundesbank chief Nagel presents annual report (Tues, 10am); speech by the ECB’s Schnabel in London (Tues, 1pm); ECB publishes account of Jan. 29-30 policy meeting (Thurs, 12:30pm). |
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Monday: |
German IFO business climate (Feb, 9am); Eurozone headline & core CPI (January final estimate, 10am). |
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Tuesday: |
Eurozone new car sales (Jan, 5am); German GDP (Q4 final estimate, 7am). |
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Wednesday: |
German GfK consumer confidence (Mar, 7am); French INSEE consumer confidence (Feb, 7:45am); Spanish CPI & PPI (February first estimates/Jan, 8am). |
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Thursday: |
French PPI (Feb, 7:45am); German retail sales (Jan, 8am); Eurozone M3 money supply (Jan, 9am); Eurozone consumer confidence (February final estimate, 10am); Italian industrial sales (Dec, 10am). |
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Friday: |
French headline CPI (February first estimate, 7:45am); French GDP & consumer spending (Q4 final estimate, 7:45am); French private sector payrolls (Q4 final estimate, 7:45am); German unemployment (Oct, 8:55am); ECB 1 & 3 year CPI expectations (Jan, 9am); Italian core CPI (February first estimate, 10am); German headline CPI (February first estimate, 1pm). |
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Key earnings: |
Iberdrola, AXA (Thurs). |
Fig C: Eurozone M3 money supply (Y-o-Y %)
Key UK macro data & events
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Events: |
Speeches by the Bank of England’s Lombardelli & Ramsden at the 2025 Bank of England Agenda for Research Conference (Mon, 9am & 1:15pm), Dhingra at the Birkbeck Centre for Applied Macroeconomics on the state of UK monetary policy (Mon, 6pm), Pill closing remarks at the 2025 Bank of England Agenda for Research Conference (Tues, 2pm), Dhingra at the National Institute of Economic and Social Research (Wed, 4:30pm) & Ramsden in South Africa on monetary policy in a world of geopolitical fragmentation (Fri, 7am). |
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Monday: |
N/A |
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Tuesday: |
CBI distributive trade survey (Feb, 11am). |
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Wednesday: |
N/A |
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Thursday: |
N/A |
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Friday: |
Lloyds business barometer (Feb, 12:01am); Nationwide house prices (Feb, 7am). |
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Key earnings: |
National Grid (Wed); London Stock Exchange Group, Rolls-Royce (Thurs). |
Fig D: UK Nationwide house prices (Y-o-Y %)
Key Asia-Pacific macro data & events
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Events: |
Speeches by the RBA’s Jones in a fireside chat (Tues, 2:45am) & Plumb (Wed, 9pm); market holiday in Japan on account of Emperor’s Birthday (Mon). |
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Monday: |
Japanese PPI services (Jan, 12:50am). |
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Tuesday: |
Japanese machine tool orders (January final estimate, 6am). |
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Wednesday: |
Australian CPI (Jan, 12:30am); Japanese ESRI leading index (December final estimate, 5am). |
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Thursday: |
Japanese retail sales (Jan, 11:50pm); Japanese industrial production (January first estimate, 11:50pm). |
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Friday: |
Australian private sector credit (Jan, 12:30am); Japanese housing starts (Jan, 5am). |
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Key earnings: |
N/A |
Fig E: Japanese industrial production (Y-o-Y %)
Last week:
Longview on Friday, 21st February 2025:
“Europe – Six Potential Upside Surprises”
Global Macro Report, 19th February 2025:
“UK: (It’s Always) Darkest Before Dawn”
The SHORT VIEW (& market positioning), 18th February 2025:
“GBP: Uptrend Underway?”
Prior week:
Longview on Friday, 14th February 2025:
“Gold & the Heightened Equity Pullback Risk”
Longview Letter No. 147, 12th February 2025:
“The British Economy –> Ways to Fix the Lack of Growth” - Section 2
The SHORT VIEW (& market positioning), 11th February 2025:
“Gold: When is ‘Max FOMO’?”