Markets: Pre-crisis redux - AmpGFX

According to Greg Gibbs, Analyst at Amplifying Global FX Capital, the market has moved beyond the crisis mentality that defined much of the period from 2008 to 2016, into a more buoyant mood where the global economy and assets are viewed in a sustained growth phase. 

Key Quotes

“In many respects, the current market environment feels more like the pre-global financial market crisis era, from 2004 to 2007.  Like the current phase, since 2017, the USD tended to weaken against most other currencies in the few years before the 2008 crisis.  A notable exception at that time was the JPY.  At that time, carry trades, funded out of the JPY, were very popular.”

“Risks are being built into the global markets that will eventually cause a correction in equities and the associated fall in the USD.   We are reluctant to sell the USD at this juncture but admit that it can continue to fall for some time.”

“The market is in a mood to look past developing risks; including tariffs implemented by Trump on Solar and Washing Machine imports.  Individually these measures may not be significant, but they point to a protectionist trend that might undermine confidence in emerging markets, and raise inflation expectations in the USA, prompting higher yields that might undermine equities and strengthen the USD.”

“Perhaps the most obvious risk to the sanguine view in global equity markets is rising inflation pressure in the USA.   The weaker USD itself will tend to raise inflation pressure in the USA.”