Morning Brief – Stocks look vulnerable

The stock market looks vulnerable to further losses today as US futures are in the red, while the European session is also looking shaky with the FTSE100 and all the major European indices set to open lower.

Despite the drop in stocks the US dollar index is flatlining currently, although the down leg which started next week has scope to continue much lower according to the charts.

Cryptos also seen vulnerable to losses, and with this in mind we probably need to pay close attention to Bitcoin as it is often a proxy for some of the leading tech stocks.

Morgan Stanley‘s Wealth Management unit have given their outlook for US equities. Analysts there argue that the recent equity gains are not the start of a long-term bull market; rather, they are just another bear market bounce.

The present surge appears to be supported by loosening financial conditions rather than strengthening economic fundamentals. Morgan Stanley project these will turn around later this year.

According to the investment bank “Even as stocks trade higher, recent market action for other asset classes paints a starkly different picture. US government bonds: Treasury yield curves remain deeply inverted, a time-tested signal that an economic downturn is on the horizon.”

They also add that “Since the October low for the S&P 500, Gold continues to outperform both the S&P 500 and the Nasdaq” and “If equity investors are expecting a ‘soft landing’ and potential rebound in economic growth later in 2023, oil prices do not reflect that.”

Closer to home, news that Britain’s housing market suffered the most widespread price falls since 2009 last month may weigh on sentiment in the FTSE100 for housing stocks today.

As the run of interest rate increases over the past year weighed on would-be buyers, the worst is probably not over. The Royal Institution of Chartered Surveyors (RICS) house price balance, which measures the gap between the percentage of surveyors seeing rises and falls in house prices, fell to -47, the lowest since April 2009, from -42 in December.

The BoE last week said Britain’s economy would probably fall into recession in early 2023 and would only come out of it in early 2024, a shorter period of contraction than in its previous set of forecasts.