The Latest Developments In The Global Economy: Europe Gets More Disunified, But For The Present That Simply Means Lower Interest Rates, And Higher Stock Prices

The global economy is robust despite showing signs of modestly slowing down due to delta COVID, which is good news for the major financial markets since it means lower bond yields and more craving for yield out of equities. The volatility risk premium points to a higher market over the next few days (though volume may be light since the VRP could easily reverse and catch investors offside), while my technical reading of key stocks in the S&P 500 is bullish. There is one negative factor across global asset classes. Inflation expectations are rising based on measures of Treasuries and TIPS. Taken together, the market looks set to overcome these concerns and rise moderately over the next few days.

While China has lately dominated the geopolitical—financial markets nexus, the economic news so far this week focuses more on Europe & the US. The US manufacturing ISM, actually saw good news on the inflation front, which helped send the yield curve lower, a positive for US equities in the current context. In Europe the major economies are muddling through the COVID resurgence but peripheral countries made news in varying directions. Greece has seemingly quietly attained a measure of market confidence, as global bond traders have bought their bonds and seem not to fear Grexit anymore. But in Hungary the Finance Minister tested the waters on leaving the EU, since Hungary’s illiberal democracy is firmly antagonistic to the European mainstream. And another major illiberal democracy, Turkey, is seeing inflation troubles again, which could spell trouble for the Turkish Lira and cause selling of other EM currencies as well, typically a negative development for US equities. So watching Turkey’s central bank is critical this month.

Yesterday I added a position in Activision (ATVI). Other market positions include longs in Blackrock (BLK), Facebook (FB), MKS Instruments (MKSI), Titan Machinery (TITN), and nearly hedged position that is net long in the SPX (UPRO and SPXU).