next week would be a crucial week. with market expecting only a 25bp cut.
the US data has been deterioriating last week, with historical low home sales, confidence, etc.
ECB has been talking about hiking to fight inflation.
If it turn out that FED cuts 50bp, and ECB keeps hawkish, and housing data week. It is definitely not the USD bottom yet.
a weaker than expected NFP would stall the current equities rally, putting a halt to the much anticipated May rally.
Hence the current action of SPX around 1390 would turn out to be distribution.
Expect an attempt of SPX towards 1405.
The mood in Asia is generally bullish.
I drop into a HK bank today, and they are offering Euro deposit at 4.2%/pa for 2 months.
Probably they are betting on a Euro drop. selling Euro high and buy back earlier.
If Euro stays breaks 1.6000 and hold there for a couple of months, it is going to be lots of pain.
On the other hand, Treasury sold off strongly on expectation of FED pause. and means funds are preparing to flow into Equities.
Possibly, a FED wait and see would lose precious time, while the stimulus program is not hardly stimulating.
This explains the Bear market formation. A first leg of drop, then a rebound and the final plunge into oblivion at SPX around 1000 to 1150.
Unless, FED can see a recovery on hand. However FED does not have a good record in forecasting turning points.
The latest housing statistics is pointing to a deteriorating housing prices, and more unsold homes.
If Euro is seems to be slowing, simply b'cos US is heading into a longer slump.
Hence a recovery in May is not realisitcs. While US is heading into recession, loans of higher grades, other than subrimes would be in peril. Hence the Banks would need to raise more and more capital. Eventually even nations would go bankrupt.
After failures of majot banks, we are going to see the fall of national central banks, possibly the Icelandic, and New Zealand central banks with huge budget deficit.
After next week cut, at 2% fed fund rate, US real interest rate would be negative. We may expect a outpouting of liquidty into the market. And that makes things really uncertain.
Hence ironically we may eventually have a roaring Equity while global economy is slowing down. And that is "irrational exuberance".
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For those who think that FED would cut only 25bp, pls click on the Google ads above.
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