The tape faces four big catalysts/events between now and probably the end of the year according to JPMorgan:
1) The Fed. Do they move in June or Jul? The former has the Brexit problem on June 23 (although the odds of an “out” vote have declined enormously) and the latter lacks a press conf. Will two hikes this year (one in the summer and another ostensibly in Dec after the elections) spark another steep rally in the USD or will currency markets stay calm?;
2) China FX – the CNY hit a high of ~6.60 vs. the USD earlier in the year, rallied to ~6.45 as of the end of Mar, and has since rebounded to ~6.58. It isn’t so much the absolute level that investors watch (although that is clearly important) but instead the pace of weakness that is most important (Aug saw a sharp devaluation and that repeated around the end of Dec/early Jan). The messaging from Chinese officials suggests they will avoid additional sudden 1x devaluations but further CNY weakness should be expected (JPM is assuming 6.63 by the end of Q3 and 6.75 by the end of the year);
3) Japan policy – the surprise adoption of NIRP on 1/29 was a major negative not only b/c it drove a global sell-off in bank stocks but also as it undermined central bank confidence in general. The BOJ is likely gearing up additional action (at either its 6/16 or 7/29 meeting) and it will be important for it avoid a repeat of 1/29;
4) US elections – the consensus expectation right now assumes a Clinton victory but current trends suggest such an outcome is far from certain. Hillary hasn’t even secured the Democratic nomination and appears headed for a very acrimonious convention. The GOP meanwhile is quickly unifying behind Trump and recent polls are pointing to a very close election in Nov. Note that control of the Senate is very much up for grabs this year too (the House seems safely in Republican hands).
* * *In the meantime, stocks have never been more expensive... Price-to-Sales has never been higher:
Positioning is extreme...
And complacency is high...