Overnight, the Nasdaq traced out a potentially bearish outside reversal technical formation. It made a new record high, only to fade and close below the low of the day before. Reading the chicken bones of the charts has always been more of an art than a science, but several reasons make this more significant than most.

The Nasdaq has been the star equity performer since the mid-March panic capitulation sell-off across financial markets. The rally has been astonishing as markets bet on big-tech’s allegedly COVID-19-proof business model. It was big-tech that led the sell-off late in the New York session on both the Nasdaq and S&P 500.

I have long said that renewed impositions of large-scale pandemic lockdowns in developed markets, could undo the work of the world’s central banks in pimping up asset prices. Victoria Australia, Greece, Hong Kong, to name but a few, have followed this path in recent times, whether by lockdowns or again imposing restrictions on overseas visitors. Yesterday they were joined by California, which has aggressively rolled back economic reopening measures as Covid-19 rages across the US sunbelt states. Its significance should not be understated, as it could be the precursor for both Texas and Florida to follow into self-isolation. Given the concentration of big-tech companies in California, it is no surprise that the Nasdaq de-FAANG-ed itself yesterday.

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Momentum also appears to be waning for now in both currency markets, and energy markets. The rotation out of US dollars has slowed to a crawl. Oil prices, having traded sideways for over a month, are edging towards the lower end of their range.

China-US Tensions Heat Up

The geopolitical temperature is heating up as well. The US overnight finally got off the fence with regards to China’s South China Sea claims, basically saying they were spurious and that all nations bordering the sea had the same rights to share the toys. More importantly, they also stated that some outcrops of rock and reefs claimed by the Philippines come under the auspices of the US defence pact with the Philippines. We all know China’s track record on sharing toys, and it is not good. The geopolitical heat is set to be turned to high at just the wrong time, if there is any right time, of course.

With the growth over graves reopening model under duress across the world, momentum stalling in financial markets, and the geopolitical temperature ratcheting higher, now might be a good time for even the most ardent v-shaped recovery gnome to pause for thought. Did I also mention that Covid-19 is still rampaging across much of the planet?

Much has been made of the 41.2% fall in Singapore’s Advance GDP MoM this morning. The headline number is the stuff of nightmares but is rather harsh on the city-state. A much fairer perspective is the YoY number, which showed GDP dropping 12.60%. Still ugly by any measure, but not unsurprising, given Singapore is a tourism and transport hub and has a very open trade-based economy. Their numbers are always going to be volatile in this context. We should also note the GDP number reflects the complete lockdown of the island, as part of their Covid-19 circuit breaker measures. That Singapore is in a deep recession, there is no doubt. But Singapore’s numbers will rebound equally quickly if the reopening stays on track, and should a vaccine arrive in Q4, the country will be exceptionally well placed to recover faster than most countries.

China has also posted its balance of trade data this morning. In US dollar terms, the surplus retreated in June to USD 46.4 bio, after a record USD 62.93 bio in May. Pleasingly for markets, both the export and import components outperformed. Exports rose 0.50% vs -1.50% expected. Imports rose 2.70%, well above the -10.0% expected. The import number will be drawing sighs of relief from around the Asia-Pacific. With so much event risk sweeping the globe, it does appear that China’s recovery remains unspectacularly on track, and that China is back in international markets buying goods. Exports will remain a challenge with the rest of the world in recession, aside from the risk points outlined above.

All in all, the “graves over growth” model followed by much of the world, is under increased pressure today.

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