FREE

The Weekly Track rites-of-passage

- The Weekly Track – Rites of Passage by Bob Savage
http://trackresearch.com/articles/the-weekly-track-rites-of-passage/

Beginnings and endings, weddings and funerals, ceremonies and milestones – rites of passage dominate this Spring. This is what many see in the present market as the recovery from the February noise led to new highs in the US market for small company shares this week. There is less fear, more diversity, the usual rotation plays and anxiety over the MSCI shift in equities – with China shares a key part of the story, throw in the modest hopes for a bounce back from Winter’s soft patch and you have the set up for the week ahead. Last week delivered some important technical breaks in other markets from Brent Oil prices over $80, to US 10Y yields over 3.12%, to the USD over 111 JPY. This weekend’s Royal Wedding in the UK started summer early with the pomp and circumstance bleeding over to US graduations and proms all tinged with the usual mix of world headlines. This highlights the economic opportunity sets between rich and poor. The weekend also brought modest steps tow
ard resolution of the big geopolitical fears that mattered Friday – namely, US/China trade talks, North Korea Summit hopes, Iran and oil, Brexit and Italy (with a straw-poll from the League on the new coalititon plans). The focus on the week ahead will pivot on how central bankers and investors think about it all – from the FOMC to the ECB to the emerging markets where FX pain reflects the pull back of international money. Perhaps the bigger pain not yet reflected in the world markets revolves around political tail risks – with inequality no just the realm of the US. The poorest half of the global population has seen its income grow significantly thanks to high growth in Asia (particularly in China and India). However, because of high and rising inequality within countries, the top 1% richest individuals in the world captured twice as much growth as the bottom 50% individuals since 1980. The wealth inequality reflects onto central bankers plans for stoking up asset pr
ices post 2008 and the risks of a backlash when they stop supplying the liquidity. This is the rite of passage for markets to get beyond the fears of a liquidity trap writ large over the global markets.