The State of Markets: Emerging Complacency (& euphoria)
Risk appetite in markets was reasonably strong last week. In particular, US equities continued to march higher, with new record highs in the S&P500 and the DJIA (and new local highs in other indices, e.g. DJ Transports). With that, pockets of euphoria have emerged (with parabolic moves higher in airlines and financials stocks, e.g. see chart below). Other classic signs of risk appetite included the sell-off in US Treasuries (and bond proxies), as well as strength in key liquidity barometers (e.g. with new record highs in gold, and new local highs in Bitcoin).
All of which is consistent with growing complacency in markets. Illustrating that, downside put protection in portfolios was reduced again last week (with traders and investors increasingly facing the same way). The key question, therefore, is: Will that frothiness in equities keep building (for now)? Or is a pullback about to start? We outline our view on that in recent research, including in our Daily Risk Appetite publication, as well as in our Tactical Equity Asset Allocation research.
Next week’s US macro data will be watched closely and includes the Conference Board Leading Index (Monday), existing home sales (Wednesday) with new home sales and PMIs (both Services and Manufacturing) due on Thursday. There are also several speeches by key FOMC members, including Kashkari, Harker, and Barkin, amongst others. The Fed’s Beige Book is out on Wednesday and key companies reporting earnings include Tesla (Wednesday) and Amazon (Thursday). Please see below for a full list of upcoming macro data, earnings, and events.
Key chart: S&P500 airlines index, shown with 50 & 200 day moving averages
Upcoming important data/events this week:
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Events: |
PBoC policy decision (1 & 5 year LPR, Mon, 2am); Bank of Canada policy decision (Wed, 2:45pm); speeches by the Bank of England’s Breeden & Bailey and the ECB’s Lane, Cipollone, Escriva, Knot & Centeno at the IIF annual membership meeting (Wed, 2-10pm); the ECB’s Lagarde speaks on Europe’s economic challenges at the Atlantic Council (Wed, 3pm). |
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Monday: |
German PPI (Sept, 7am); US Conference Board leading index (Sept, 3pm). |
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Tuesday: |
N/A |
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Wednesday: |
Eurozone consumer confidence (October first estimate, 3pm); US existing home sales (Sept, 3pm). |
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Thursday: |
Flash PMIs for manufacturing & service sector for Japan (1:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all October first estimates; US new home sales (Sept, 3pm). |
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Friday: |
Eurozone M3 money supply (Sept, 9am); US durable goods orders (September first estimate, 1:30pm). |
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Key earnings: |
GE Aerospace, Danaher, Philip Morris, Verizon, Texas Instruments (Tues); Tesla, Coca-Cola, T-Mobile (Wed); Amazon, Mastercard, Caterpillar (Thurs); HCA, Natwest (Fri). |
Key Research
Longview on Friday, 18th October 2024:
“Signs of Market Exuberance PLUS Where Have all the Fiscal Hawks Gone”
The fashion this week amongst market-watchers has been to ascribe the recent strength in equity markets to the improving chances of a Trump Presidential victory (along with the growing potential for a Republican clean sweep i.e. Presidency, House of Reps and Senate – see quote). Bond yields have been backing up and equities rallying (especially mid-caps & banks), so the argument goes, to reflect the greater business deregulation, the higher levels of fiscal stimulus and more stock market friendly policies than a Karmala Harris Presidency (Plus the likely ‘relatively’ lower bank capital requirements under Trump).
Indeed, whilst Harris has been trying in recent weeks (months) to appear more business friendly, there is undoubtedly some truth in that idea (i.e. that the market has been pricing in a Trump victory). Certainly the betting odds have shifted decisively in the past few weeks (fig 1), while the election forecasting model of well known experts (like Nate Silver) has switched, yesterday, to predicting a Trump win (just).
Key North American macro data & events:
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Events: |
Bank of Canada policy decision (Wed, 2:45pm); speeches by the Fed’s Logan at SIFMA annual meeting (Mon, 1:55pm), Kashkari in Townhall event (Mon, 6pm), Schmid on the Economic and monetary policy outlook (Mon, 10:05pm), Harker at Fintech conference (Tues, 3pm), Bowman at Fintech conference (Wed, 2pm), Barkin speaks about community colleges (Wed, 5pm) & Hammack at an event hosted by the Fed & ECB (Thurs, 1:45pm); Fed publishes Beige Book (Wed, 7pm). |
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Monday: |
US Conference Board leading index (Sept, 3pm). |
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Tuesday: |
US Philadelphia Fed service sector activity (Oct, 1:30pm); US Richmond Fed manufacturing (Oct, 3pm). |
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Wednesday: |
US existing home sales (Sept, 3pm). |
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Thursday: |
US Chicago Fed national activity (Sept, 1:30pm); US weekly jobless claims (1:30pm); US S&P manufacturing & service sector PMIs (October first estimate, 2:45pm); US new home sales (Sept, 3pm); US Kansas City Fed manufacturing sector activity (Oct, 4pm). |
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Friday: |
Canadian retail sales (Aug, 1:30pm); US durable goods orders (September first estimate, 1:30pm); US Michigan sentiment (October final estimate, 3pm); US Kansas City Fed service sector activity (Oct, 4pm). |
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Key earnings: |
GE Aerospace, Danaher, Philip Morris, Verizon, Texas Instruments, Rtx Corp, Lockheed Martin, Fiserv, Sherwin-Williams, Moody’s, 3M, Freeport-McMoran, PACCAR, Norfolk Southern, General Motors, Kimberly-Clark, Baker Hughes (Tues); Tesla, Coca-Cola, T-Mobile US, Thermo Fisher Scientific, IBM, ServiceNow Inc, NextEra Energy, AT&T, Boston Scientific, Boeing, Lam Research, General Dynamics, CME Group, Amphenol, GE Vernova LLC, O’Reilly Automotive, Waste Connections, Newmont Goldcorp, Roper Technologies, Hilton Worldwide, United Rentals, Ameriprise Financial (Wed); Amazon, Mastercard, Caterpillar, S&P Global, Union Pacific, Honeywell, United Parcel Service, Northrop Grumman, Carrier Global, Arthur J Gallagher, Capital One Financial, Digital, Keurig Dr Pepper, L3Harris Technologies, Monolithic, Valero Energy, Nasdaq Inc (Thurs); HCA, Colgate-palmolive, Aon (Fri). |
Fig B: US Conference Board leading index (Y-o-Y %)
Key European macro data & events
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Events: |
Speeches by the ECB’s Simkus in Vilnius (Mon, 8am), Centeno in Washington (Tues, 2pm), Knot in New York (Tues, 2:05pm), Holzmann in Bloomberg panel (Tues, 2:45pm), Villeroy in New York (Tues, 6pm), Rehn at Peterson Institute event (Tues, 7pm), Lagarde on Europe’s economic challenges at the Atlantic Council (Wed, 3pm), Lane, Cipollone, Escriva, Knot & Centeno participate in IIF annual membership meeting (Wed, 3-8pm), Kazaks on ‘Global Macro Economy in a New World’ (Thurs, 2pm) & Lane at ‘Inflation: Drivers and Dynamics 2024’ conference (Thurs, 6pm). |
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Monday: |
German PPI (Sept, 7am). |
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Tuesday: |
Eurozone new car sales (Sept, 5am). |
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Wednesday: |
Eurozone consumer confidence (October first estimate, 3pm). |
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Thursday: |
French INSEE business & manufacturing confidence (Oct, 7:45am); HCOB manufacturing & service sector PMIs for France (8:15am), Germany (8:30am) & Eurozone (9am) – all October first estimates. |
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Friday: |
French INSEE consumer confidence (Oct, 7:45am); Spanish unemployment rate (Q3, 8am); Spanish PPI (Sept, 8am); German IFO business climate (Oct, 9am). (Oct, 9am); ECB 1 & 3 year inflation expectations (Sept, 9am); Italian ISTAT consumer & manufacturing confidence (Oct, 9am); Eurozone M3 money supply (Sept, 9am); French total jobseekers (Q3, 11am). |
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Key earnings: |
Sandvik (Mon); L’Oreal (Tues); Atlas Copco, ASSA ABLOY B, DSV, Air Liquide, Iberdrola, Heineken (Wed); Hermes International, Vinci, Equinor, SEB A (Thurs); Sanofi, Safran (Fri). |
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 Greene at the Atlantic Council (Tues, 2:15pm), Bailey at the Bloomberg Global Regulatory Forum (Tues, 2:45pm), Breeden on cross-border payments (Tues, 8:15pm), Breeden at the IIF annual event (Wed, 2pm), Bailey at the IIF annual event (Wed, 9:30pm) & Mann in Washington (Thurs, 2pm). |
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Monday: |
Rightmove house prices (Oct, 12:01am). |
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Tuesday: |
Public sector finances (Sept, 7am). |
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Wednesday: |
N/A |
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Thursday: |
S&P manufacturing & service sector PMIs (October first estimate, 9:30am); CBI industrial trends orders (Oct, 11am). |
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Friday: |
GfK consumer confidence (Oct, 12:01am). |
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Key earnings: |
Lloyds banking, Reckitt Benckiser (Wed); Unilever, Relx, London Stock Exchange, Barclays (Thurs); Natwest (Fri). |
Fig D: UK S&P manufacturing & service sector PMIs
Key Asia-Pacific macro data & events
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Events: |
PBoC policy decision (1 & 5 year LPR, Mon, 2am); speech by the RBA’s Hauser at Fireside chat (Mon, 2am). |
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Monday: |
N/A |
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Tuesday: |
N/A |
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Wednesday: |
Australian Judo Bank manufacturing & service sector PMIs (October first estimate, 11pm). |
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Thursday: |
Japanese Jibun Bank manufacturing & service sector PMIs (October first estimate, 1:30am); Japanese machine tool orders (September final estimate, 7am). |
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Friday: |
Japanese PPI services (Sept, 12:50am); Japanese ESRI leading index (August final estimate, 6am). |
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Key earnings: |
UltraTech Cement (Mon); China Mobile, China Unicom Hong Kong LTD (Tues); Telstra Group, HKEX (Wed); CNOOC,Wesfarmers, Fortescue Metals (Thurs); China Shenhua Energy Co (Fri). |
Fig E: Japanese Jibun Bank manufacturing & service sector PMIs
Last week:
Longview on Friday, 18th October 2024:
“Signs of Market Exuberance PLUS Where Have all the Fiscal Hawks Gone?”
Global Macro Report, 17th October 2024:
“UK -> The Boom Drivers”
Global Macro Report, 14th October 2024:
“UK Housing & Credit Cycles: Turning Upwards?”
Prior week:
Longview on Friday, 11th October 2024:
“The (Largely) Ignored Risks (that really could matter)”
Longview ‘Tactical’ Alert No. 85, 10th October 2024:
“SELL Signals: A Full House a.k.a. Remain Cautious”
Monthly Global Asset Allocation No. 51, 7th October 2024:
“Oil Prices: Rangebound in 2025 A.k.a. Sideways Trend in Global Oil Inventories”