What next post the weeks volatility ?

Equity markets around the globe were negatively affected by the uncertainty over US-China trade talks, as the US carried out its threat to raise tariffs on 200bn dollars of Chinese imports to 25%. As two egotistical men look to impose their will. Equity markets had become too complacent over the situation. The S&P pulled off a strong recovery late on Friday to prevent one of the worst weeks for the index going back to December last year.

Other factors that impacted sentiment this week. Uber's much-awaited arrival at the doorstep of many investors was not so well received. The stock losing almost ten pct at one point from offering price. The press, over the weekend, remains sceptical for the outlook for the share price. Highlighting that Uber burns cash at a staggering rate of 2bn dollars a year. Fund managers quoted in the weekend press comparing Uber's valuation and subsequent price performance, reminding them of 1999. Uber has managed to raise 25bn dollars in the past decade in a combination of debt and equity yet remains cash flow negative. It was often believed that when a company listed on an exchange if the first few days started poorly it takes a while for sentiment to improve.

Iran also announced this week it would stop adhering to some of its commitments under the 2015 nuclear accord. Considering the events of the week, it is probably a little surprising the Vix index, finished the week lower than where it started.

The pound finished the week little changed the resurgence of Nigel Farage into the political scene. The man who effectively forced David Cameron's hand in 2014, leading to the referendum. His re-emergence ahead of the European elections could add another level complication for Brexit and Mrs May.

Looking to the week ahead, earnings will come back into focus as will economic data and statements for Federal Members. Retail earnings from Ralph Lauren, Walmart and Macys, will be keenly awaited. Michigan consumer sentiment is expected to show an improvement in May. Fed Vice Chair for Supervision Randal K. Quarles will testify before the Senate Banking Committee on Wednesday.

This past week was a volatile one, much for investors to be fearful of. We took the view that a 5 or 6% correction was required to give a base to build from again. The past week's uncertainty meant that at the low point on Friday the correction was close to 4% from the peak. The Japnese yen, a measure of risk aversion was stable, indicating modest risk aversion. After the past week, we may be in for some consolidation at the lower levels, enabling equity markets to build again.

Posted on May 12, 2019 .