The wall of worry builds

The selling in equities continues while bonds have steadied. The US dollar has been under heavy pressure aside from the commodity currencies.

If there was a time for a bit of safety seeking, this would be it and here's why:

1) Earnings today

The selling in US equities today is heavily skewed towards tech and it's no surprise that we get earnings today after the bell from:

  • Apple
  • AMD
  • Microsoft
  • Google
  • Visa

Shopify and Spotify also report before the open tomorrow.

Tesla beat yesterday and the shares are down anyway. That's been a consistent theme so far so unless you're expecting a massive beat, expect some selling.

2) The Fed tomorrow

The long-term record of buying stocks on Fed day is sparkling but in the past year it hasn't been so pretty. Most market watchers anticipated a tilt back towards the dovish side on temporary inflation and delta worries but the risk is that Powell holds the line and tees up a taper.

3) Heavy slate of economic data

The PCE report (headline PCE on the chart) is due on Friday and the Q2 GDP report on Thursday are part of a heavy slate of data this week. The reaction function to economic data hasn't been entirely clear this year. We've had a series of goldilocks numbers lately but the market hasn't cheered. One thing is certain though, high inflation is problematic and that is a risk worth guarding against.

4) Leverage and valuation

Leverage is the background noise to everything in markets at the moment. It's uncomfortably high and that perpetually leaves the market vulnerable to a violent pullback if there is every something genuine to worry about. At the same time, we're a whisper away from record highs in the all the main US equity indexes.

5) China

The selling in Chinese equities this week on the combination of delta worries and a crackdown on educational companies. The longer it goes on, the tougher it is to ignore. The chart of the Hang Seng isn't a pretty picture:

PCE inflation