While most financial assets can fall to zero, there usually comes a point where so much bearishness is factored into the price that there’s limited scope for further losses, and the alarm bells turn to screaming ‘buy’ signals for investors.
It doesn’t get much gloomier than that.
Similarly, can the market’s Fed view get any more hawkish than a terminal rate of 5% and 10-year yield of 4%? Possibly, but that may require a catalyst not baked into current forecasts – and recession next year is pretty much the consensus view, Reuters cited.
In any case, the economic data is actually not as bad as feared. Citi’s U.S. and G10 economic surprises indexes are the highest since May, and the global surprises index on Friday crept up to its highest since June. Emerging market indexes are the only ones still lagging.
Maybe the bar of expectations has been set too low. But that’s what financial markets are pricing against, and if the economic outlook isn’t quite so bleak, that could bode well for earnings and therefore equities more broadly.
Key developments that could provide more direction to markets on Tuesday:
Australia RBA minutes
Germany ZEW index (October)
U.S. industrial production (September)
U.S. TICs data (August)