Tensions are increasing
This month, FischViews focuses on the rapid decline in money supply, which is a warning signal for financial markets. However, so far, this is being ignored as markets continue to move higher, leading to increased tensions.
Summary: Tensions are increasing
Central banks remain on a highly restrictive course for the time being. Therefore, global money supply and liquidity continue to decline rapidly.
At the same time, economic indicators, real estate markets and corporate earnings momentum also continue to weaken.
However, equity and credit markets currently seem to be ignoring this dangerous combination of simultaneously lower growth and tight monetary policy.
As a result, increasing tension is building up, which could unwind in the medium term amid high market volatility.
The slowdown in economic activity and inflation is currently still happening too gradually to allow for a rapid easing of monetary policy. Central banks are thus prepared to accept both a recession and another substantial market correction.
Overall, we, therefore, continue to see an asymmetrical risk/reward ratio in financial markets. The risks still predominate in the medium term.
However, as mentioned above, investors are attributing more weight to positive news than to negative news in the short term, which means that we are currently seeing positive market technicals. However, this does not seem sustainable to us and can change quickly.