Global stock market tonic still working

Summary

Whatever the antidote for non-committal risk appetite is, the dose was still working at last check against a host of familiar pressures.

Some antidote

1. Another Apple supplier sell-off that sent global tech stocks into another wobble 2. Weaker oil prices and oil shares after President Donald Trump asked Saudi Arabia not to reduce output 3. The dollar scraping the highest since 2017 4. Underlying euro and sterling pressure from the Brexit endgame and Italy’s budget deadline.

Vodafone leads bedraggled bounces

Like shares in Vodafone though, still down some 34% for the year, simpler explanations for the market to take a breather from a punishing year are a factor. Outperforming U.S. stock indices now lead high-profile gauges in most other regions only modestly. For instance, the S&P 500 closed on Monday up 1.44% in the year to date. That compares with Europe’s STOXX flagging by 7%, and Shanghai/Shenzhen’s CSI300 tanking by 20%. With all major equity regions clearly worse for wear after numerous pummellings, investors are increasingly on the lookout reflexive forays higher, well-founded or not.

Apple ecosystem decays more

Lack of traction in Apple shares means that it fails to benefit from the more discriminate atmosphere that has prevailed so far on Tuesday after a blanket rout among shares of suppliers overnight. A target price downgrade by Goldman Sachs, accompanied by reduced iPhone and fiscal 2019 forecasts, mean the stock continues to weigh, belying intimations of a broader rebound. Other pivotal suppliers of the group—chiefly IQE and Qorvo—also threw in their own forecast downgrades, joining a rash of reduced guidance from component manufacturers in recent days. As well, Foxconn missed quarterly profit forecasts.

A clear patch in Brexit clouds

Other pretexts to hang a global stock market bounce on also have hollow aspects. Dark Brexit clouds seldom stray far but have cleared for now. The stream of headlines emitting from London, Brussels and Dublin keep prospects of a cabinet nod to the current deal, however grudging, on the table. What would happen after that in Westminster and in Dublin is anyone’s guess. Naturally, most news reports pointing to improving chances that Downing Street can win top ministerial approval continue to be based on indirect accounts. Everyone involved in the process is still hedging and keeping cards close to chest. Whilst less probable now, the reality is that progress could still implode again at any moment before the special summit pencilled in but not confirmed for some time between 18^th and 21^st of the month.

Rome is another weak seam

There’s another weak seam in Rome. With the deadline for Budget submission crossing into early Wednesday and no sign of a re-think about plans by the coalition for a ‘non-compliant’ 2019 Budget, Italy’s hawkishly watched 10-year borrowing costs and spreads continue to grind into a probable second straight week of expansion. In other words, the fixed income market is positioning for Italy not to change tack. The advance back toward fever-pitch yield and spread levels is more orderly than in May and October though. Presumably, after a statement from the European Commission confirming that its rejection of the Budget still holds, a gap in proceedings could even see relative calm continue. But the situation is inherently stable and the return of cross-asset volatility in Milan, and other European markets remains a matter of when rather than if.

On Wednesday, the UK and U.S. will supply the week’s macroeconomic data highlights in the shape of consumer inflation updates. The dollar has stalled just short of fresh 16-month highs as its key tailwinds, the euro and sterling, retrace higher, but it could soon get further fundamental impetus. Tightening dollar conditions are on the deficit side for global markets, so a strong U.S. CPI print would probably be a weakening influence on a modest rebound of risk appetite.