OVERVIEW:
2. Current macro-economic backdrop and areas we currently favor…
3. The FDA’s approval of Guardant Health’s Shield™ liquid biopsy test marks a significant advancement in colorectal cancer screening.
4. World Watch (Japan, Germany, Bangladesh, and global economic snapshot)
5. Quant & Technical Corner – A selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment. (UMCSENT, CFNAI, LEI, M2V etc.)
1. The recent global stock market selloff has been the highlight of the week.
In the US, the delayed effects of the Federal Reserve’s tightening monetary policies are starting to provide more evidence that these policies are working. Inflation has slowed, mainly due to lowered energy prices. Core inflation has also softened and will likely continue to do so in the coming months, in my opinion. Weakness in housing dataas well as the nation’s ISM manufacturing data, indicates economic weakness. We have only had two positive ISM manufacturing dat
a months in the past 20 months. March 2024 and April 2023’s ISM data were slightly above 50, while all other months were below, going back to November 2022. Both unemployment claims and payroll data indicate a softening jobs market. Money supply growth has also slowed to approximately 2.1%, compared to the normal average of 6.1%.
In such a scenario, the government can stimulate the economy by increasing the money supply through the following actions:
- The Federal Reserve buying bonds,
- Lowering the discount rate and interest rates,
- Reducing reserve requirements for financial institutions, and
- Performing quantitative easing by directly purchasing long-term securities (e.g., mortgage-backed securities, MBS).
Despite evidence of economic slowdown and a stock market selloff, Mohammed El-Erian believes an Emergency Fed rate cut would be a mistake. Click onto picture below to access video. REF: Bloomberg
Tom Lee, Fundstrat Global Advisors managing partner and head of research, joins CNBC to discuss the latest market trends, what to make of the latest market sell-off, impact on the Fed’s interest rate decision, and more.
2.Current Macro-Economic Backdrop
Ed Yardeni believes the recent selloff starting from Friday was a result of the “carry trade” unwinding.
A “carry trade” is a financial strategy in which an investor borrows money at a low interest rate from one country and invests it in assets that offer a higher return in another country. The goal of this strategy is to profit from the difference between the borrowing cost and the investment return. Traders have used such carry trades by borrowing Japanese yen to buy higher-yielding assets. Ed also indicated that this global market selloff has more to do with technical factors rather than fundamental reasons (fear of recession). Ed believes our economy is still strong and the chances of a financial crisis forming as a result are low. Click onto picture below to access video. REF: Bloomberg