Japanese markets are closed this morning as mainland Chinese markets return from a week long holiday. At the opening bell, Chinese markets were already 2% lower and slipped further during the day to end up over 3% lower.
China made it clear, at least verbally, that they are not afraid of a trade war with the United States but a decision to cut the amount of reserves held by banks shows that they are nervous about a long drawn out trade war. Either way the continuing trade war remains a very real concern for the markets.
Surging bond yields in the United States is the other concern for global equity markets as those yields raise the threat of a tipping point for equities – the point where large investors rotate out of equities and into bonds. This time round, its not just the amount of the yield that needs to be watched but also the velocity or speed of change in the rate. Both have the markets on high alert at present.
That being said, the DOW and S+P remain close to their record highs and both are recording gains of over 7% so far this year. With Earnings season upon us again, all eyes will be on the results of Wells Fargo later this week.
With Brexit in the UK, Mid-term elections in the U.S. and a maverick Italian government in Europe, the geo-political landscape remains a very real concern and currencies will likely be the biggest movers this week as there is an abundance of economic data tabled for the week.
Sterling hit strong resistance against the euro at 1.1400 and has fallen back already this morning. GOLD remains under pressure and dollar strength remains the prevailing force. We will continue to trade all from the short side.