The world economy is healing. However, there remains clear headwinds to the continuation of this healing, such as the emerging market risk-reassessment. Quite clearly, risk is being mispriced at current levels given the economic backdrop and clear pressure upon corporate revenues/margins/earnings — not to mention the contined QE taper glide path.
STRATEGY: The S&P 500 remains above the 160-wma long-term support level at 1444; but perhaps more importantly, the distance above the 160-wma stands at+23% — down from +28%. If it expands above +30%, then an upside explosion is under way; but under it — then a larger correction is expected to materialize.
WORLD MARKETS ARE LOWER ONCE AGAIN TO BEGIN THE WEEK as negative news out of China once again has pushed the emerging and developed markets lower. Chinese services PMI fell to 53.4 from 54.6, which coupled with Friday’s US weakness – pushed Japan’s NIKKEI lower by -2.0%. As for European bourses, they opened a bit higher as the Eurozone manufacturing PMI rose to 54.0 from 53.9…which means it was expanding given it was over 50.0. This is the strongest month…but a tenth mind you – since mid-2011. This was enough to allow higher prices, but the fact of the matter is that the emerging markets are weakening in a continued state – and they shall for quite some time into the future.