• Global equities were lower this week on renewed global growth concerns, stronger USD and some
exhaustion post the strong year-to-date rally. Markets also took a rather cautious view of the more
dovish ECB stance, with Euro dropping to two year low and bond yields falling across the board, with
Defensive sectors in the lead, and Eurozone Banks among the worst performing sectors. Our Global
equity strategists argued earlier in the week that a number of traditional tactical indicators are
starting to look toppy, with market consolidation likely. They cited overbought levels of S&P500 RSI,
elevated levels of Bull-Bear spread, complacency returning in Investor Intelligence survey and the
complete unwind of the Q4 VIX spike. While these suggest that some near term market weakness is likely,
our strategists believe that one should use these dips as a buying opportunity, as they note that in
contrast to pure price moves, the actual investor positioning has not become stretched. US L/S investor
leverage remains low, as is HF beta. Flows into equities have not returned yet, nor have the flows into
Cyclicals sectors. For these reasons our strategists believe that the near-term market weakness will not
be overly deep. In addition, the fundamental backdrop will continue to improve, in their view. Their key
theme remains that we are in the midst of mid-cycle correction, similar to ’15-’16 episode, and not close
to the end of the cycle. The Growth-Policy trade-off is clearly much better than was the case in 2H ’18.
Global activity momentum is likely to look better going forward with a resilient US, improving China and
stabilising Europe. In their opinion, this will lead to a next leg up in the Cyclicals trade, post the
near term consolidation.
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