The global euphoria gripping equities accelerated on Wednesday, as benchmarks around the world extended gains amid economic green shoots and further dollar weakness.
The euro rose for a seventh day ahead of the ECB, which is widely expected to top up its pandemic purchase program by at least €500 billion this week.
“At the moment nothing seems to tire this equity market rally as just as the winners
of the last two months were running out of steam, along come the laggards to the party”, Deutsche Bank wrote Wednesday.
Final readings on European services and composite PMIs for May showed improvement from the flash prints, adding to the good vibes across the bloc.
“The planned lifting of lockdowns will inevitably help boost business activity and sentiment further in coming months”, IHS Markit’s Chris Williamson said.
Again, this comes as Europe takes its first major strides down the road to fiscal unity via a planned €750 billion joint recovery fund, while the ECB mashes the gas on bond buying. Germany is also pushing for more domestic stimulus.
Italy saw record demand for a 10-year issue on Wednesday.
Of course, the usual caveats apply. A final deal on the recovery vehicle will take months, and the bloc’s economic woes after far from over. “The outlook is scarred by the prospect of demand remaining weak due to household spending being hit by high levels of unemployment and corporate spending being subdued”, IHS Markit’s Williamson went on to caution.
Meanwhile, in China, the Caixin services PMI printed the highest in a decade. It was the first expansion-territory print since the crisis began and marks an acceleration of the recovery in the Chinese services sector.
“Supply and demand both recovered quickly… as service providers accelerated resumption of work after the domestic COVID-19 outbreak was largely brought under control”, Wang Zhe, Senior Economist at Caixin, said. Still, Wang warned that “external demand remains sluggish [with] the gauge for new export business in negative territory for the fourth straight month [while] employment in the services sector remained worrisome”.
Obligatory caution aside, and the inherent futility of consulting PMIs coming off the kind of outright economic collapse witnessed in the first four months of the year notwithstanding, all of this is being taken by the market as further “evidence” to support the liquidity-driven rally.
The dollar’s ongoing weakness, and oil’s surge (Brent rose above $40 Wednesday) is just gas on the fire.
EM FX rose to the highest since mid-March and nearly all equity indices climbed, from the Philippines to Malaysia to South Korea.
Singapore is now in a bull market, joining Malaysia’s KLCI, as Asian gauges begin to catch up with “V-shaped” rebounds in some developed market benchmarks.
And speaking of developed market benchmarks, the Nasdaq is within 1% of record highs.
The forward P/E on global equities is the highest since 2002.
We have literally gone from markets and investors climbing the wall of worry to just jumping over the wall in stride, no effort. I’m afraid to even think about it but may be, just may be, Tom Lee was right all along, modern markets always go up in perpetuity, even if a meteor is heading our way the correct move is to buy the QQQ.
Most commentators and analysts feel compelled to spin a narrative which purports to “explain” price action. Readers here should realize that if the flow data we are seeing is right, real investment managers are not weighing signs of recovery and “green shoots”. They are simply getting forced to buy as the momentum and return to the mean trading systems drive prices up.
Those systems do not “look ahead” and weigh risk/reward and and, ohmygod, cash flows. They simply react to price action. Buying begets buying, selling brings in more selling. Nothing inherently evil or stupid going on, outside of calling people who put money into the funds “investors”.
There is a feel to this phenomenon that whispers ” live for today ,for tomorrow we may die…” So many aspects and layers of uncertainty have numbed our senses….
Just a race to compete the second leg of the W formation this market will likely exhibit. We overshot to the downside and are overshooting to the upside. As with anything, the answer is somewhere in the middle.