Equity markets started the week on a positive note, possibly counter-intuitive to what could have been expected when the weekend began after the sharp falls on Friday in Europe. The rally late on Friday for US markets underpinned equity markets in Asia overnight on Sunday and this helped follow through into Europe. A further rally in US equities on Monday night helped Asia and Europe push on again early on Tuesday. Possibly once again only going to prove, sell on the rumour and buy on the facts. Equity sentiment had taken a knock over the past few weeks, which was helpful to a recovery, the threat of trade wars helped undermine sentiment further. Europe retaliation to Donald Trump’s threats by targeting those who enjoy a Whiskey, riding Harley Davison motorcycles, and wearing jeans. Their policy seems to be going after motorcycle gangs.
The FTSE 100 index has been under the cosh as much as any equity market over the past few weeks. This has partly been a result of some concerns that, not only has the UK economy been slowing slightly in the first quarter, after the downward revision to Q4 GDP growth, but the global economy as well. The recent services sector Purchasing Manager Survey that came in well ahead of expectations may offer some relief and raise expectations that growth in the first quarter has not deteriorated any further.
Where too now? With so much uncertainty around in the bond market, with possible further rate hikes, now with the increased threat of trade sanctions there remains enough to cause further volatility. On the plus side, there continue to be signs that the signs of economic weakness in the first quarter seem to be abating.
We have mentioned in the past movements in other asset classes that could indicate whether risk appetite is increasing or decreasing. A rising yen is considered a sign that risk is being taken off the table. Particularly a few years ago when it was being used to run carry trades. Gold could be considered another, in times of uncertainty the worlds teddy bear can be popular.
Could the Bitcoin be another? The Bitcoin price rose sharply last year as risk appetite increased and then fell ahead of the equity market correction. It has now recovered somewhat and led something of a recovery in equity markets. That would be interesting if the Bitcoin became a sign of risk tolerance. Also, not entirely beyond the realms of possibilities.