Bassanese Bites: Testing resistance – May 11 2020
Global equities continued to remain focused on re-opening hopes last week, disregarding apocalyptic economic data from most corners of the world outside of China. The fact Wall Street could rally in the face of 20 million job losses in April, and a surge in the unemployment rate to 14%, is testament to the forward looking nature of markets. Interestingly, bond yields – unless seriously held down by central bank purchases – are not yet buying the ‘V-shaped’ recovery story, with US 10-year yields still comfortably below 1%.
As I alluded to last week, while I’m bearish (I still see a re-test of previous market lows as a 60% chance), I concede the news flow does not appear supportive of a relapse in the market anytime soon. Indeed, barring a sudden second wave CV-19 outbreak in a major economy sometime soon, we seem likely to keep basking in re-opening rays of light and even a rebound in current plunging economic data (U.S. weekly jobless claims, for example, while still shockingly high, at least appear to have peaked). And there’s still the Fed and Trump on the sidelines, prepared to throw more money at America’s problems if need be.
So why remain bearish? Because while we’ll see improvement, it still seems likely we’re only one move from our current depression to severe recession – rather than the halcyon pre-CV era – as restrictions will be only gradually removed and, either way, the CV shock will likely curtail the previous debt-fueled binge in consumer spending and share buybacks. The risk of a second wave also remains until such time as a vaccine is readily available.