In the short term it appears that markets will take their cue mainly from the US earnings season, which is now underway. Assuming things pan out as expected on the earnings front then it is likely that risk markets can remain elevated and possibly eek out some more gains.
This is because there are a few market friendly things which are about to happen. It looks likely that:
However, longer term there are issues for investors to address. Ray Dalio, possibly the world’s most famous fund manager, wrote a positive note on gold this week. However, his rationale for holding gold is not necessarily positive for other risk assets. Clearly the US and China still have petrol left in the tank to do more easing but how long can this last for, especially with rates so low in the US and China’s debt ratios growing again?
The US debt ceiling fight could rear its ugly head even in the short term. According to the FT, Steve Mnuchin, US Treasury Secretary, last Friday sent a short letter to Nancy Pelosi, the Democratic speaker of the House of Representatives, laying out the need for action on the debt ceiling before Congress takes its August recess. With the recent race row having inflamed the already toxic relationship in Washington between Democrats and Republicans, this could have negative consequences for the debt ceiling negotiations.
Looking to the FAANG stocks: at the beginning of the week Netflix reported some disappointing numbers compared to expectations and its share price has fallen 11% since the announcement. On Thursday the FT reported that NSO, the Israeli company whose spyware hacked WhatsApp, told buyers its technology can surreptitiously scrape all of an individual’s data from the servers of Apple, Google, Facebook, Amazon and Microsoft.
Surely, those Silicon Valley giants will have more to say on this topic in the coming weeks – so investors may wish to watch out for their response to NSO’s claims.