FX Update: USDJPY suddenly points to a chink in USD bears’ armor
The US dollar staged either a comeback or a short-squeeze on Friday, depending on the USD pair in focus. It was a move that looked modest relative to recent weakening in the USD of late , but the back-up in USDJPY was particularly forceful and is the first chink of any note in the armor for USD bears. The next USD pair with pivotal levels coming into sight is AUDUSD ahead of a little-anticipated RBA meeting tonight.
Monthly Macro Outlook: Getting things done
The COVID-19 has left deep market scars. Among the main global indexes, only U.S. indexes are in positive territory on a year-to-date basis (+0.65% for the S&P 500 and +20.62% for the Nasdaq). Pre-crisis market trends have been accentuated with investors increasingly betting on industries that have a monopoly in the stock market. In the age of rising market power, only six well-known high tech stocks now represent around 49% of the Nasdaq. Over the past few months, we have observed a rotation into momentum stocks (i.e. consumer staples, which are usually more resilient in period of recession) and growth stocks, which are associated with listed companies that are growing earnings. This phenomenon is especially visible in the U.S. and in emerging markets. While stocks show a steady green in the U.S., the bond market continues to flash a red light about the state of the economy. History teaches us that smart money tends to be right more often than equity investors. Said differently, the balance of risks lie to the downside for the equity market in H2 if, as we expect, the V-shaped market narrative fails to materialize.