Trussonomics 2.0 and the Looming Threat to the Global Equity Rally
Thomas Johannes Look
Capital Management (up 41,75%+ in H1 2024, up 23,17%+ in H2, since 1 July 2024), Corporate Advisory & Digital Publishing
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A Closelook At This Edition
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(1) This Week's Action: Global Stocks In Corrective Mode
The week spanning from Monday, October 28 to Friday, November 01, 2024, displayed severe cracks in the global bull market narrative.
The Dow Jones Global Index moved down to the 4900 level and found support at the upward-sloping lower trend channel line, which has defined the lower boundaries of the bull market channel since autumn 2023. The long-term bull market channel was not violated.
The index looks like it has completed an extended wave 3 and is setting up for a consolidation wave 4.
There is support at the 4800 level (between 4850 and 4770) and between 4600 and 4500.
Taking a very long-term view, the bull is stretched. It has touched the decade-long upward-sloping upper trend line.
The index may be about to form a long-term bearish wedge. Right now, the wedge appears incomplete, suggesting that there is more upside to the bull narrative after a period of consolidation.
A short-term downward channel has formed, which may provide resistance to any move north in the coming week(s).
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(2) Global Stock Markets: Comprehensive Overview Of 30 Global Stock Markets
Argentina, Taiwan, Hungary, Spain, and Germany (DAX) continue to be the five best-performing global stock markets outside the US, taking a one-year perspective.
The table below displays 36 global stock markets. Laggards are France, China, and Mexico.
The only index in the red, the worst-performing index globally, taking a 1-year perspective, has been the Russian RTS Index.
Taking a 30-day view, laggards have become top performers, with the mainland Chinese and Hong Kong markets leading.
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Argentina is the best-performing country, followed by the Shanghai Calls B Index, the Taiwan Weighted Index, Ibex 35, and NZZ 50. Only ten indices moved up, and 26 indices moved down.
Russia was the worst performer. However, India, Mexico, and Brazil performed badly too.
I expect another bull market leg to occur in China soon. I will cut China's exposure and trim positions on the anticipated rise.
I will be adding to the existing India positions. I expected a whole leg down in the Indian market first two weeks ago. This seems to be unfolding.
I will be adding to the current positions on any meaningful dip. The first level to buy is at 24000 on the Nifty-Fifty index, and the second and third are at 22800 and 22000.
The Euro Stoxx 50 Index moved lower during the past week. It found support at the critical 2-year trend line.
A heavy resistance zone has formed from 5000 to the spring 2024 tops.
The index may see a new 52-week high, but the move looks like the final move up (for quite some time).
(3) Macro Insights: Trussonomcs 2.0 Ante Portas
The bond market has started to vote early, sending a clear message ahead of the November 5 US presidential and congressional elections. Since the Federal Reserve's September 17-18 meeting, the 10-year US Treasury bond yield has surged by 77 basis points to 4.39%.
This significant increase reflects the Bond Vigilantes' concerns about Fed Chair Jerome Powell's dovish monetary policy and the potential for economic overheating.
Market Reaction and Analysis
On Monday, October 28, 2024, the Treasury announced its marketable borrowing estimates. The projected financing is $546 billion in Q4-2024 and $823 billion during Q1-2025.
This announcement comes against a staggering national debt, currently at $35.5 trillion. This includes $27.7 trillion of US Treasury marketable debt and $7.2 trillion of intragovernmental holdings.
The latter represents the government's IOUs to itself, primarily resulting from borrowing from public trust funds like Social Security and Medicare.
Alarmingly, this debt is projected to expand at an annual rate of over $1.0 trillion solely to cover the net interest outlays of the Treasury.
The Bond Vigilantes appear to be voting against the Fed's recent actions, particularly the 50 basis point rate cut on September 18. Their concern stems from the perception that the economy is already running hot and further easing could lead to overheating.
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