In a reflection of the current market bind the US dollar fell further overnight despite further support for risk assets. Expectations that the Fed will slow interest rate rises has fuelled higher growth estimates. Shares in Europe were mixed, but US indices added to Friday night’s strong gains. Industrial commodities continued their surge, and bonds remain under pressure.
The interplay of growth and interest rate forecasts could dominate market action over the course of the year, or until central banks regain neutral monetary policy levels. This complicates forecasts, as market reactions to economic data depend on which signal markets choose – the positive of higher growth or the negative of higher interest rates. Increased market volatility seems the safest call.
An absence of higher level data today means the market focus stays on Beijing. The trade discussions with the US are a key risk factor for the short term. No news or bad news could quickly stir concern and reverse the recent recovery in risk assets. On the other hand any positive signs, or even a continuation of the current truce, could support further gains for investors.