The roller coaster for equity markets continue. The threat of an increase in tariffs to Chinese imports into America hit equity markets on Wednesday. On Thursday a great deal of the losses was reversed as Federal Chairman Powell gave an upbeat review of the US economy as he predicts the tax cut boost could stimulate the economy for the next three years. Global equity indexes remain trading in tight ranges as the push me pull you of trade war threats and economic growth continue to dominate investor sentiment.
One gets the sense strategists are becoming more cautious, as they believe we are reaching the peak of the cycle. On top of that, we are unable to rely, as we did, on the central bankers put. How much rosier can the picture get from here? Seems to be the common theme. Probably not a lot more is more than likely correct, however, the question remains how close are we to an economic recession? That will ultimately dominate the direction of equity prices. During periods of economic recession equity markets have on average corrected about 20%. This coincidently is the amount is considered a market to fall to enter bear territory. It still feels a bit like everyone is prepared and expecting a correction. A present there is not a lot to suggest a global economic recession is around the corner.
The earnings season for the second quarter starts on Friday, with the bank's sector. Banks have been underperforming the market as bond spreads have narrowed, a decent reporting season may help push a more positive sentiment for the broader market.
The latest release of US inflation reported a rise to 2.9%, core prices rose to 2.3% from this time last year. This is above the Federal Reserves target of 2%. This news had little impact on US treasury markets as the yield curve has now flattened to 23 basis points between the ten and two-year bond.