European and US futures are trading lower as investors are reacting to the adverse Chinese economic number. But before we go into that, the equity investors can still proudly say that it hasn’t been extremely rough so far this year by looking at the broader indices such as S&P up 3.57%, the Dow Jones up 2.87% and the Nasdaq index which is maintaining its strong gains of 5.07%. Of course, investors have to thank the Fed. Jerome Powell, the chairman of the Federal Reserve took some important steps in maintaining the market confidence.
It wasn’t simply possible for the Fed to let the fruit of their hard labour go to waste. The jawboning had to stop at some stage, and I do think that the Fed understood clearly what the market needs are. For instance, the current water down version about the tightening of the balance sheet was a decent move. Reducing the size of the balance sheet while increasing the interest rate created too much shock for the economy. The system needs some time for recovery now.
Having said this, the jury is still out and by no means, we are out of woods. The soggy growth over in China and the ongoing trade war between the US and China have everything on a tight leash. Under these circumstances, the market participants are confident that the Fed isn’t going to increase the interest rate anytime soon, at least not in the coming six months. This has brought some stability for the investors to a large degree.
However, the more cautious outlook is coming from China today. Investors are once again on the back foot in relation to this and they do not feel comfortable about the risk on trade. The Chinese trade numbers released today got all the alarm bells ringing once again, the country's export fell sharply to 4.4%. This is as devastating as this can be because the previous number was 5.4%. If you ever need any evidence that how the trade spat can impact the country's economic health then this number is clearly a major factor here. The lower export number also means that lower jobs which means another direct impact on the economy. Donald Trump may be pleased to see these numbers because it shows that his policies have clearly brought China to its knees. Clearly, Beijing must do something to put a stop to this chaos. President Trump may actually beat his chest even more by looking at the fact that China's trade surplus with the US is at a 10-year high.
Back home, it is all about Brexit and all eyes are one thing: how bad Theresa May is going to lose in the parliament. The prime minister clearly doesn’t understand that no one really likes the deal she has made with the EU. The EU policy members who are involved with the Brexit divorce process are actually enjoying this moment because they literally have a win-win situation; they have put the UK in an extremely difficult position and they have all the leverage in relation to what they can say. We are expecting the markets to remain on the edge on the back of this and we don’t expect the Brexit divorce vote to have any success in the parliament tomorrow. The British pound and the FTSE 100 are the two major choices for investors who like volatility and of course there is abundance o this.
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