Equity markets are coming back to earth as earnings season prepares to kick off in the US tonight. The proof of the pudding is in the eating, so all the optimism of recent weeks could be temporary as earnings will likely disappoint.
What makes things so tough to figure is the fact that markets are discounting mechanisms and at some point begin to look forward rather than backward. Traditionally, equities turn up six-months or more before the economic cycle turns, so we will be seeing wisps of daylight long before the real dawn comes. And we won’t know it’s come until the sun moves above the horizon. So far, it’s still pretty dark.
Traders are looking at the here and now today, spooked by the prospect of $4 trln total in toxic debt out there and fears that for all the signs that China may be emerging from recession that those will not be sustained unless the global economy can shake off its debt burden.
EUR/JPY continues to act as the market’s risk barometer and risk is on the rise, the cross tells us. Monday’s 134.50 support level was broken in Asia, acted as resistance on rebounds and the region from there up to 134.75 should now be a firm cap. The cross is backing and filling but 133.50/60 should contain bounces near-term. 1309.95/00 is near-term support. EUR/JPY