Global markets have become extremely US centric
The week that was
The US market recovered on Friday but was still down by around 2% for the week, the 6th week in a row. The longevity of this weakness in markets seems to be testing the ‘buy the dip’ traders and last week’s volatility was as much about sentiment as the economic outlook, although a slightly higher than expected US inflation number certainly didn’t help. While the year on year number of 8.3% was attention grabbing, it was the fact that last month’s number was slightly above expectations and surprisingly broad based that spooked markets a bit. As market watchers have come to expect both the news and volatility was very much US centric and the graph below, showing world sector performance illustrates the extent to which markets have been resting while the US sleeps and gyrating when US markets open. Most of the world market is listed in the US but the difference in volatility between the US has become ever more pronounced in recent weeks. This is also reflected in the underlying flows data - the US retail investor remains unusually influential and is not sure where to go next. The so-called meme stocks have now mostly gone back to where they came from and there are anecdotal reports of the retail army moving on to defensive narratives like Heinz, Coca-Cola and Pepsi. The chart also shows that Consumer Staples remained in positive territory while IT and Consumer Discretionary stocks were down 8%, especially weighed down by former market darlings Apple, Microsoft and Tesla respectively. Similarly, the Nasdaq where these stocks also figure prominently was down by a similar amount but jumped by almost 4% on Friday. Adding to the end of an era feel was increased talk, or acknowledgement, of what had been post-COVID bubbles in what is now dubbed profitless tech and the implosion of inappropriately named Terra ‘stable coin’.
![](https://cdn.prod.website-files.com/625423e90ca8a4fac65dac26/62ab675cea9e439597ac5a29_USCentric.png)
The local market by comparison was fairly quiet and, had it not been for cooling iron ore prices, would have been fairly flat, with most sectors down just slightly. CSL was helped by news that the substantial Vifor acquisition was back on track and the banks were also up on positive results from Westpac,CBA and a reassuring outlook report from rating agency Fitch. European markets, however, provided the best returns and most stability with the UK and Continental markets up for the week after a relatively quiet period where global consumer staple companies like Unilever and German car manufacturers led the way.
Despite last week’s 8.3% annual inflation print in the US and the growing expectation that the ECB will at last join other central banks in raising rates more aggressively, long-term bond yields actually fell around the world as longer-term inflation expectations appeared to drift down on increased recession fears. That said corporate bond markets remained relatively sanguine and, if anything, spreads narrowed slightly in all but the riskiest bonds.
On the other hand, China’s lock-down woes cast a negative light on commodities which were mostly down, especially across the industrial metals complex. Weakness in the two largest economies in the world is perhaps also on investors mind so maybe economics does still matter when you look through frothy behaviour of US retail investors.