Negativity on the macro front is finding its way into investor sentiment despite robust earnings, Barclays said, in a note. Cross-asset markets are pointing to a growth scare.
That latter bit was a reference to falling commodities and a resurgent dollar. The greenback hit a nine-month high this week.
The bank’s Emmanuel Cau cautioned that the path forward might be bumpy, as markets move into mid-cycle following a liquidity-fueled bonanza that saw global equities stage one of the most spectacular rallies in history after bouncing off the pandemic lows in March of last year (figure below).
For Barclays, economic resilience and robust corporate profits will still dominate investor sentiment, feeding the ubiquitous buy-the-dip mentality.
Investors’ classical conditioning is strong, that’s for sure. But this week proved challenging. The brutal collapse of Chinese tech shares, hints at Fed tapering, the fall of Afghanistan to the Taliban and, of course, the spread of the Delta variant, gave markets pause.
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A day after Toyota warned it would halt output at its Japanese plants on parts shortages tied to regional COVID outbreaks, Volkswagen said it will operate just one shift at its Wolfsburg site next week when it restarts following the summer break. The problem: Ongoing, industry-wide disruptions tied to the semiconductor shortage. Wolfsburg employs 60,000 people.
According to IHS Markit, the semi shortage could mean global auto production drops by more than 7 million vehicles this year, a figure that doesn’t include the Toyota pause. Disruptions tied to the pandemic will likely persist into 2022, the same report said.
The Volkswagen news was yet another reminder that supply chain problems and various “bottlenecks” are far from resolved. European shares were on pace for their worst week since February (figure below).
That, after the Stoxx 600 notched an incredible streak of daily gains, logging record after record in the process.
“What goes up,” and such.
