What happened:

  • The most significant event of the last few weeks is dramatic rise in Treasury yields. That’s what made Morgan Stanley to issue the “triple sell warning on equities“. In correction we trust
  • Most of economic indicators of the last few weeks came better than expectations, so we may expect Q2 GDP growth to be slightly above Q1
  • Productivity is at 10 year low, which prevents Feds from cutting rates. Nothing improves productivity better than a recession
  • The market is quickly developing the pattern called “The Jaws”. The last time it happened in 1987 and ended up with market collapse. Hopefully the quick and sizable correction will remove the risk of collapse
  • Retail sales are not good
  • Spain sold 38% of its gold in the last 2 years (with sale accelerated recently). Needs money, I guess

What to watch next week:

  • Next week broker dealers will report earnings. Let see what they have to say
  • Retail sales (probably not too bad, but not very good either)
  • Inflation will not surprise to upside
  • When stocks and bonds are falling together I wonder where all the money go. Let watch dollar/yen ratio for carry trade clues
  • The sharply increased interest rates may negatively affect merger and acquisition activity. Someone will start talking about that next week