Stocks Tumble on Profit Taking; FX Steady

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Risk dumped on EU Open
IFO beats
Nikkei 0.07% Dax -1.84%
UST 10Y 0.71
Oil $40/bbl
Gold $1773/oz

Asia and the EU
EU IFO 86.2 vs. 85

North America Open
No data

The start of European trade saw a sharp tumble in stock with index futures falling by more than 1% before finding some support as equities appeared to have hit a profit-taking air pocket.

There was no major news to drive trade and the move looked like a classic dump on the open after several days of gains. FX, on the other hand, remained steady with currencies treading water at essentially unchanged levels from yesterday.

On the economic front, the IFO survey came in slightly better than expected printing at 86 vs.85.2. According to the survey export expectations have risen dramatically suggesting that global demand is beginning to pick up. Klaus Wohlrabe, an economist at the Ifo Institute noted that third-quarter growth could be as high as 7%. “We have passed the economic trough, the low point is behind us and things are looking up again,” he said.

Global economic barometers are clearly pointing to a rebound as countries come back from lockdown and economic activity returns but the big question ahead for investors is whether all the good news is priced in. The rapid recovery in equities essentially assumes that growth will return quickly, but so far the rebound is only signaling a 70% capacity of output and it very doubtful that G-11 nations will actually achieve positive year on year growth anytime in the foreseeable future. So little wonder that equity investors are beginning to take some money off the table as the “rebound” trade appears to be fully priced in.

The calendar today is barren so barring any fresh newsflow the profit-taking moves may continue into the US session. For Nasdaq the 10,000 level remains the key hold while in the S&P the 3150 resistance is proving too much finally giving the bears a chance to control the price action for a bit.

Boris Schlossberg
Managing Director

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