As anticipated last week, the U.S. central bank did not cut rates on Wednesday but a glance at the Fed Fund futures suggests that it will do so in July. Ahead of Jerome Powell’s press conference, Mario Draghi had already promised more monetary stimulus to avert a more severe slowdown in the eurozone, pulling stock markets higher along with high-beta currencies in spite of the escalation of geopolitical tensions. Fears of a confrontation between the United States and Iran have indeed mounted after the latter shot down a U.S. military drone on Thursday. The New York Times reported that U.S. President Donald Trump had approved military strikes on Friday in retaliation, but eventually pulled back at the last moment.
So far, these renewed tensions in the Middle East have not derailed stocks. After strong inflows on Wall Street, the S&P500 closed at an all-time high on Thursday (2,954.18) and finished the week up 2.20% while the Nasdaq Composite added 3.01%. In fact, all the broad-based indices performed in unison (MSCI EMU: +2.18% ; MSCI Emerging Markets: +3.76% ; Shangai Composite: +4.16%).
Unsurprisingly, the energy sector soared (+5.19%, the most among the 11 major S&P sectors) as oil prices skyrocketed (WTI futures: +9.17%) in the wake of tensions between Washington and Tehran. Healthcare (+3.12%), telecoms (+2.91%) and industrials (+2.66%) also fared well. Consumer staples (despite strong U.S. retail sales data), materials and financials were the weakest sectors with modest gains. Nevertheless, this is the third time this year that all the S&P sectors were positive over a one-week period.
Same picture in the bond universe. Treasury yields continued to decline (U.S. 10-year T-note at 2.05%, 3-month T-bill at 2.1% ; 10-year German Bund at -0.29%, 10-year French OAT at +0.05%). Investment grade corporate bonds (U.S. +1.13%, Europe +0.78%) as well as high yield bonds (U.S. +1.14%, Europe +1.06%) rose on both sides of the Atlantic.
Last but not least, it is worth noting that safe haven gold made a firm break above the $1,350-60 long-held resistance. It last stood at $1,396.2/oz, up 4.19%.
To sum up, all asset prices are going up throughout the world, apparently without regard to the risks incurred. In a word, it looks like a free lunch.
Find the full report here : https://www.trackinsight.com/weekly-flow-report/2019-06-21/global