Equity Markets Setting up for a Short Term Bounce?

The markets have absorbed a great deal of negative news the past few weeks.”

*China flexing its muscles in response to U.S. raising the stakes.  Look for China to return the favor regarding Huawei, and target U.S. companies (Fed Ex and others) https://www.nytimes.com/2019/05/31/business/china-list-us-huawei-retaliate.html

*Trump not content with taking on China. Trump has put Mexico on notice for raised tariffs, linked to immigration and India had its developing nation status revoked, which opens up for tariffs on over 2,000 goods they exported duty free. https://www.bbc.com/news/world-asia-india-48482988

*U.S. Department of Justice is putting together an antitrust probe of Alphabet/Google. 
https://www.nytimes.com/2019/05/31/business/google-antitrust-justice-department.html 
Others in the crosshairs are Apple, Amazon and Comcast.  There seems to be broad political agreement on investigating Tech companies by both the Republicans and the Democrats.

*U.S. and Iran have not made any progress on discussions, and have the market worried.  Interestingly, the oil market price development would seem to suggest that cooler heads will prevail.

*Possible ECB disciplinary actions on Italy based on its high level of debt.

*Many of the latest global economic indicators suggest that global growth is slowing.  The RBA is out tonight and the market expects a cut in rates.

*Run up this week to G20 meetings June 8th and 9th in Japan.

Key releases this week to watch for:

U.S. manufacturing ISM today

U.S. non-manufacturing ISM Wednesday

ECB decision Thursday

German Industrial production

U.S. Unemployment report Friday

The equity markets look as though they will try to bounce short term as they are technically oversold.  The question is what will be the driver for a retracement higher?

*Good news on Mexico looks to us as the most likely fundamental event.

*Perhaps softer economic numbers in the U.S. will get the Fed talking bit more dovish, which may lead to higher prices.

We at Minter look for lower markets into the end of the year, but this market feels like it will be range trading, with lower lows and lower highs.

Gold has broken higher, but looks overdone short term.  Next key levels are $1325 and $1350.  We are still believers that gold trades higher and breaks the 1360 level.

High Yield Bonds, which have performed well from the year end to a couple of weeks ago, appear to be headed down. (yields higher)

S&P looks oversold short term, we would not rule out a bounce, but will look to sell higher levels

Not surprisingly, the Dax looks similar to S&P, a bit oversold at these levels.

USD index has backed off the highs and has support at 97.50, 97.00 and 96.60   as long at it holds these levels we expect a stronger USD.

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