The U.S. stock market is soaring past its all-time highs, but according to a major financial institution, “markets are paralyzed with uncertainty.”
In a note to investors on Friday, September 9, RBC Capital Markets’ head of cross asset strategy Charlie McElligott pointed out the issues facing the current U.S. equity market. (Source: Durden, T., “‘Get Ya Popcorn Ready’ RBC Says: ‘Markets Are Paralyzed with Uncertainty’ as ‘Spooky Story’ Arrives,” Zero Hedge, September 9, 2016.)
The analyst said that markets “don’t like getting hit four sides at once.” The first thing hitting the market is the latest decision by the European Central Bank (ECB) to leave its €1.7-trillion stimulus package unchanged. Before the announcement, many were expecting more easing from the ECB.
The second development, according to the analyst, is the announcement that Federal Reserve board member Lael Brainard would be speaking on Monday. Known as one of the more dovish Federal Open Market Committee (FOMC) members, Brainard will discuss “the economic outlook for the United States,” as well as “the monetary policy implications.” (Source: “Beyond Interest: The Economic Outlook and Monetary Policy,” The Chicago Council on Global Affairs, September 8, 2016.)
McElligott said that, as one of the least hawkish people from the Fed, Brainard would be the best choice to deliver a hawkish message at the September meeting.
The third concern is related to the Bank of Japan. The analyst noted that the Japanese central bank is adamant about going further with its negative interest rate policy (NIRP) and also that its investigation of “curve tweaks” is gaining steam.
Last but certainly not least, McElligott is worried about the increasing supply in U.S. investment-grade corporate bonds, which stands at $52.0 billion on the week. Moreover, he noted that next week there will be a huge issuance of U.S. Treasuries, with the potential of around $100.0 billion in bills, $50.0 billion in coupons, and another $50.0 billion in more U.S. investment-grade bonds.
According to the analyst, “markets are paralyzed with uncertainty” right now.
“How can you get more aggressive with your growthier / reflationary / cyclical outlook when not only is global economic data turning south again, but you have a month ahead with so much event risk–btwn ECB / BoE / BoJ / Fed / first US Presidential debate,” he asked?
His suggestion: “Get ya popcorn ready…”