There is no doubting the positive tone of Monday trading in New York.
To be fair, it was largely a lift from one event, that of Elon Musk buying 9% of Twitter.
Nevertheless, the market continued to look away from economic reality, US Factory Orders fell 0.5%, and simply chose to buy for buying’s sake.
This appears the dominant trend for the moment. It looks like the elastic band will continue to stretch away from Main Street reality, as Wall Streeters stay high in their ivory towers seeing only blue sky.
Over in Europe, one market continues to buck the trend of a weakening, at least consolidating – the US dollar.
The Euro is pointing south in an ominous way and I am still forecasting a fall through parity to .9700, as the Ukraine Inflation/Recession gathers force.
Many investors may well be making an error in assuming markets have looked past and already priced in this gloomy prospect for Europe.
In fact, markets have only nibbled at the idea of pricing in such an event. There has undoubtedly been ECB intervention in the support of the Euro. As forecast, they will not, however, seek to hold a line, only provide liquidity in the initial response to the conflict.
It is now likely we will see ECB support begin to crumble, leaving the Euro completely exposed to the full force of rampant inflation, an ECB that cannot hike, and an ever-deepening recession.
European inflation like the USA is already skyrocketing and will exceed 10% in the coming months. Economic growth will contract significantly. Succumbing to the three forces of rampant inflation eating away consumer and business expenditure choice, consumer caution and fear over the ongoing conflict likely to last the rest of this year, and the clear and present danger of actual energy shortages let alone their ever-higher prices.
Oil prices look to have already absorbed the US strategic reserves release and are again moving higher. I still expect $150 and $180 oil in the not-too-distant future.
Investors should make the most of the sentiment and meme moments of Elon Musk’s buying of Twitter, for all the economic fundamental writing is on the wall. People may shuffle the sentiment furniture but the writing is on the wall.
In the meantime, selling the Euro against most major currencies, especially the US and Australian dollars, could be the trade of the moment.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
