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Are the Market's Fundamental Assessments Shifting?

PART:
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Part 8
Are the Market's Fundamental Assessments Shifting? PART 8 OF 8

Can the Early June Rally Continue This Week?

Conflicting outcomes continue to puzzle markets

Since the beginning of June 2017, global equities (VTI) have rallied, despite the most recent disappointing US jobs report. US, German (EWG), and UK markets (EWU) have posted record highs amid strong earnings and optimism toward growth and the so-called “Trump trade.”

Bond markets, on the other hand, are signaling a different story for a June rally. Core US bond rates have fallen during the same period, as expectations for inflation and uncertainty over growth reign in.

Can the Early June Rally Continue This Week?

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This difference can be explained by the difference in expectations of positive growth by equity markets and the uncertain expectations of inflation by bond markets (BND). This conflicting behavior continues to puzzle market observers, and the puzzle isn’t likely to be resolved anytime soon.

Key data for the week

There will be key economic data this week (ended June 9), but politics and central bank policies are likely to remain key drivers. The ISM-Non-Manufacturing PMI (purchasing managers’ index) and the Bureau of Labor Statistics’ JOLT (job openings and labor turnover) survey will also remain in focus, but this data is likely to have a limited impact. Meanwhile, investors will be watching the GDP data from Japan this week as well.

ECB and UK elections will be the key drivers

Global markets are likely to remain volatile this week, given the uncertainties surrounding the ECB’s (European Central Bank) guidance and the tight election race in the UK. Unrest related to the latest London attacks and tensions in the Middle East after Saudi Arabia, Egypt, the UAE (United Arab Emirates), and Bahrain cut ties with Qatar (for alleged support of terrorism) are all likely to increase volatility (VXX) in markets.

Overall, it’s safe to say that investors are likely to remain cautious, though the overall optimism dominating markets now is still likely to continue—once the dust settles at the end of this week.

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