Australian shares appear set to edge lower at the open, though sentiment is positive. Bitcoin bounces. China PMI data ahead. Follow updates here.
P 500 Index’s 6.6 per cent surge last week was music to bulls, Goldman Sachs’s Christian Mueller-Glissmann and colleagues are curbing their enthusiasm.P 500 gain was one of the sharpest equity rallies on record, the 19th largest weekly return since 1950, noted Mueller-Glissmann.
Goldman remains “neutral” on equities for three months, and overweight for 12 months “as markets are likely to remain stuck in a ‘fat and flat’ regime in the near term.The rally came even as macro releases were weak in the US, Euro area and UK. “Our April core inflation measures were strong in the UK, Canada, and the Euro Area, and somewhat more moderate in Japan and the US - core inflation measures decelerated in the US. Positive inflation surprises have continued to dominate across regions.” In addition, Mueller-Glissmann said macro data has disappointed the most in China and the US, where manufacturing surveys and housing data have been weak. “That said, our US economists think that the slowdown in job openings, consumer spending, and broader growth momentum is so far consistent with slower but not recessionary growth - unless new negative shocks materialise.”“The easing of concerns about monetary policy/recession risk helped generate a relief rally last week, which has been broad across assets and regions,” Mueller-Glissmann said. Cyclicals outperformed defensives and bonds rallied alongside equities in the US. US dollar high-yield credit experienced the fastest returns, supported by duration, lower pricing of recession risk and shrinking net supply. The euro appreciated against the US dollar, helped by the front-end rate differentials moving in the euro’s favour. “The very bearish starting sentiment and positioning - in particular of systematic investors - might have also contributed to the speed of the rally.” For now, Mueller-Glissmann said Goldman remains “neutral” on equities for three months, and overweight for 12 months ”as markets are likely to remain stuck in a ‘fat and flat’ regime in the near term. “Despite the positive performance last week, we would still be cautious in expecting a broad and sustained rebound in risk appetite until we gain additional clarity on how fast inflation decelerates from here, how monetary policy reacts and the implications for the growth outlook.”
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