Only bull market is in intervention

Risk looks set to continue to roll over in tandem with the real economy outlook, as collapsing economic data, failed drug trials and tech concerns fuel a more cautious mood. For the AUD that as a global risk proxy has bounced hard in recent weeks looking through the collapsing data towards the recovery, as risk rolls over the currency is primed for disappointment. Although FX moves in today’s Asia trading session are muted. 

Gilead’s coronavirus drug Remdesivir has failed its first trial in China according to the Financial Times, contrary to documents released last week that sent US stocks surging higher on Friday. Overnight US equities pushed higher, with little regard for the addition 4.4mn jobless claims, and cratering PMIs in the US, EZ, Germany, France and the UK, something we touched on yesterday. But when news hit that the previously heralded antiviral was less cure more failure, those gains promptly reversed. The S&P 500 staged another reversal on the 50-day moving average and failed to close above, playing into to the theory that recent moves remain a bear market bounce driven by technicals as opposed to anything more meaningful. Without a vaccine or viable antiviral treatment imminent, the optimistic hopes for a V shaped snapback in activity and profits is fading fast. The re-opening process therefore being a phased transition and bounce back in activity being a slow return to normal levels. With the scale of job losses globally mounting, second order implications take centre stage and alongside a longer lasting drag on activity, the V-shaped recovery in employment can be ruled out. Job insecurity, lost savings and personal safety concerns dampen consumption as consumers choose to save more and spend less, preventing a one-quarter and done impact. Alongside plunging economic indicators it is likely that the consensus for earnings and equity fundamentals remains too optimistic at these levels, despite “QE Infinity” and fed intervention. Longer-term mounting debt levels, de-globalisation and receding international cooperation dull potential growth further.