Daily Market View: Stocks Continue To Shrug Off Growth Worries

1-Minute Market Rundown

• Equities continue to defy gravity, with the recent bear rally continuing yesterday, despite the growth outlook continuing to sour
• FX, and Treasuries, however, are starting to become much more aligned with the present macro backdrop, with the dollar rallying once more
• Looking ahead, another quiet economic calendar awaits today, as investors start to look forward to tomorrow’s FOMC minutes
  
  

Stocks Continue To Shrug Off Growth Worries

Markets were rather choppy and indecisive yesterday, struggling to digest rather dismal manufacturing data from New York State (a decent barometer for the broader US), while also finding it rather difficult to get out of first gear – Monday’s quiet news flow certainly didn’t help matters on this note.

Having said that, perhaps growth dynamics are starting to become a bit more important to G10 FX than I had recently given them credit for. The aforementioned poor NY figures allowed the dollar to string together back-to-back daily gains for the first time since the start of the month.

As a dollar bull, I’d certainly be happy to see the market re-focus on slowing economic growth as this, coupled with the Fed’s ongoing hawkishness (talk of a pause/pivot is ridiculous, imo), should be ample fuel for the buck to continue gaining ground.



In fact, it is only equities – which gained again, actually seeing the recent rally broaden out across sectors – that appear to be shrugging off the macro picture. Meme stocks going mental once again is perhaps the best indicator that the market is again ridiculously over-exuberant.

As noted, the dollar is back on the front foot, with the JPY also starting to find some demand once more. Elsewhere, crude continues to rollover, as WTI tracks below $90bbl, while some of the air has started to come out of Dr Copper’s sails as well.

One questions, then, how durable the recent equity market rally is likely to be, and the degree to which the move is being fuelled by new buyers, compared to being more of a short squeeze. It feels as if the S&P is at least going to test its 200-day MA (4,324) at this point, though this is a level where I would be looking to start fading strength.



Clearly, the recent stock market rally represents a significant loosening in financial conditions, the polar opposite of what the FOMC are trying to engineer. Consequently, the more equities rally, the greater the chances of a third straight 75bps hike next month, and the more hawkish Powell is likely to be at Jackson Hole in a couple of weeks.

There are, however, no Fed speakers scheduled today. In fact, the docket is again a rather quiet one; perhaps tomorrow’s Fed minutes will provide a little more interest.

Today's Economic Calendar

No notable releases due.

Markets This Morning (at 6am, London time)

I'd love to hear your comments, questions or suggestions. You can reach me on email at michael.brown@caxtonfx.com.

About the Author
Michael Brown is Head of Market Intelligence at Caxton, leading Caxton’s analysis, forecasting, and thought leadership within all areas of financial markets. He provides regular cross-asset market commentary and analysis, along with insight on market-moving macroeconomic events, being regularly quoted in national and international media. In addition, Michael leads on the inclusion and implementation of market research into Caxton’s data-led sales and marketing process. Away from Caxton, Michael is currently pursuing an Executive MBA at Cranfield University.