The market seems to be betting on a speedy recovery of the economy, and that the measures taken by central banks and governments will be enough to avoid a collapse.
The fall in growth, which is estimated in figures of up to double digits by the main international economic organizations and even by governments themselves, is here.
Optimism is stubborn despite the economic figures that we are getting.
US April ISM non-manufacturing PMI was published with a value of 41.8, somewhat better than expected, but still very far from the level of 50, which is considered the limit of economic expansion or decrease.
On the other hand, the Services PMI figures remain at minimum levels with an April 26.7 published today. The measures to reopen the economy are indeed progressing slowly worldwide, but that does not in any way ensure that the return to normality will be prompt as reflected in the performance of the stock markets.
All of this, without taking into account the enormous increase in government debt that will have unavoidable consequences both in the value of public debt and foreign currency.
The market still does not anticipate its total magnitude because it is an unprecedented situation.
Meanwhile, USA30 recovers almost 2% on the day, correcting above 0.50% Fibonacci from the drop that started at the end of the month.
Neither the horrible data on the economy, nor the precautions pointed out by the world investment guru, Warren Buffet, nor the fear of a broader confrontation between the United States and China (that President Trump reminded us of in his public statements), seem to affect market sentiment.
It is an atypical situation that polarizes the opinion of the primary investment managers in the world that manifest themselves in different positions and very far from each other.
An evident example of this unusual scenario was seen today with the declaration by the German Constitutional Court of assets purchases of the ECB being "illegal."
An event that, in other circumstances, would have involved an enormous movement of risk aversion in the market, mainly that of assets of the European Union. However, the European stock markets have continued their bullish recovery; only the Italian 10-year bond has seen a modest rise in its yield of around ten bps.
The Euro was sold as soon as the news was public, but then it stopped those losses and recovered part of the lost territory. The bearish break of the 1.0890 level opens the way, from a technical perspective, towards new lows at 1.0730.
In a scenario of global uncertainty like the one we are in, the element added by the German Constitutional Court should be enough for the Euro to suffer more significant losses, according to most market analysts.
Although this court has given three months to present allegations, and the European Commission has already stated that European laws prevail over those of each country, the uncertainty that arises is high. It represents a brake on the expansion of the ECB's QE that will undoubtedly be necessary to avoid another European sovereign debt crisis.
By: Miguel A. Rodriguez
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