Short Is The New Long?

This week we have seen very weak manufacturing statistics across the globe. I think it is generally accepted that we are seeing a slowdown in that sector. We are seeing a slowdown in trade due to the ongoing uncertainty. The $64,000 question is will we start to see the consumer side of the U.S. economy start to show signs of weakening?  Unemployment reports are a lagging indicator, but if the Friday report is weak, it will support Fed cuts and hurt the risk appetite in the market.

Are dovish central banks enough to offset the headwinds we are seeing? We are also cognizant of the fact that the Trump administration could be looking at various moves such as selling the USD, limiting investments in China, agreeing a short term trade deal to buy time and create some positive momentum. It is difficult to handicap what might come next, and whatever it may be, we think we are in for a slowing global economy which may bottom in the middle of 2020.

We believe that the political issues will have a damper on the willingness of businesses to invest, as planning is difficult not knowing what tariffs will affect what products and to which country. We think Europe will be up next regarding tariffs and it will happen sometime this year.

Key charts that we follow are sending warning signals:

High yield market in the U.S., broke lower and if it does not recover into the weekend, we think it will trend lower.

The VIX index is creeping back up to the middle of the range we have seen since December. 

AUDJPY cross is one we watch for hints about risk appetite. Having bounced from the 70 level to 74.50, it looks as though it is headed lower.

The tech heavy NASDAQ index looks to test support.  Q3 reports could be the cause of a correction lower.

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