After a week where the market celebrated both lower headline inflation and the long-awaited US Fed pause, stocks began to fall back just a little on Friday.
Nonetheless, it was a good week for equities generally. The only problem being US core inflation is still extremely high at 5.3%, and the Fed maintained a rather strident tightening rhetoric.
Was that as good as it gets for stock prices for the time being? Or can excess liquidity and the AI party continue to drive overall indices higher?
The other perhaps hopeful possibility is that real progress could be made in US-China relations with Secretary of State Blinken’s visit to Beijing. His meetings with the Chinese Foreign Minister are significant and represent the first senior leader visit from the USA in five years.
A reciprocal visit has already been agreed to, but whether major progress can be made remains to be seen. China is less trustful of US promises of late given their apparent walk-back of the previously agreed one China policy.
There should be positive announcements however, which would be a great relief for the world, given recent geo-political tensions in the region. Any truly positive progress could potentially generate some upside for stock markets across the region.
Key economic data on Friday saw the release of US Consumer Confidence, which remains at extreme crisis levels.
So much for the headline spins of it being the highest result in four months. It was mid the six month range, and remains worse than during covid-lockdowns and at GFC and 1980s recession levels. Consumer confidence has only been this bad a few times in its recorded history.
It appears sentiment is actually becoming entrenched at rather depressing levels. This again points to a very high risk of recession and or perhaps 1-3 years of flat economic activity ahead.
Overall, equities have been resilient and pushing higher in recent months, but that warning sign of the German market making all time record highs in the midst of recession increasingly worries me.
Something has changed, something is different, but can it be sustained?
This is the question for global investment community sentiment at the moment. Either the real world economy turns starkly positive in the west, or equity markets have to fall back?
Throughout history such gaps have always been closed one way or the other.
Market commentary from Clifford Bennett, chief economist at ACY Securities
