Sunday, February 17, 2019
Please
find below our latest Weekly Trend Update
providing indication on the trend status of and within major asset classes.
For
last Friday’s Markets Snapshot, click here.
For a link to the weekly Chart Action chart above,
click here and here.
For
last Friday’s Global Chartbook, click here.
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Have
a nice day ahead.
Marc
Trend Status Update
S&P500 witnessed a reverse crash on Friday and the
S&P500 gained 2.5% on the week (+10.7% YTD). The Nasdaq fared slightly
worse (although AAPL and AMZN have lost their status as locomotives) while Small
Caps surged 4.2% (+16.4%), leaving far behind earlier fears from a sharp
decline in December retail sales. The Nasdaq closed “on” its 200dMa, widening
the bull trend breadth, leaving the small caps index, the same that surged on
Friday, as the only major US index not yet closing in bull trend despite ending
in full break out mode (with a Z-score at 2.5!).
Europe was particularly strong on Friday, rallying more than 2%, supported
by ECB B. Coeure’s signalling the next LTRO (Long
Term Refinancing operations) liquidity injection. The contrast between a
weakening global economic backdrop and equity markets melting up clearly is a
clear reminder that equity markets keep doing what they have always done which
is caring more about what central banks do than about the economy.
Last week’s market action also suggested that equities are still trading
‘short’. That being said, and despite the sharpest decline in retail sales
witnessed in over 9 years, the US job openings (JOLTS) for the same month of
December surged to a record high. This strengthened the view that the US
economy is running out of workers which cannot be read as bad news, including
for salaries and future spending prospects.
EM markets also continued their march higher (India stood as an exception
dropping -2%), led by China which with baring last Friday’s weaker than
expected inflation report, was further supported by improved odds of a US/China
trade deal, better than expected imports and exports, a massive increase in
January’s China’s Aggregate Financing (expanding to USD685bn in January, 11%
higher than the previous record) and easing regulatory restrictions aimed at
supporting the stock market. International portfolios remain underweighted on
China despite signs of a bottoming out and international equity indices bound
to bolster passive allocation to China later this year. The air time given to
K. Baes from Hayman Capital Management on February 11th and calling on D. Trump
to get even tougher on China’s “paper Tiger” still have to produce a lasting
effect beyond an already rampant and widespread pessimism on China.
The Dollar index gained +0.3%
last week (+0.8% YTD), remaining in bull strength but by a thin margin. The
central bank liquidity push initiated by the Fed showing its heels in January was
reinforced last week by Fed Governor Lael Brainard suggesting that the central
bank is likely to start reducing its balance sheet wind down as early as next
month. EURUSD dropped sharply last Friday on B. Coere
signalling before recouping all its losses but still languished critical levels
(1.1250).
10y US Treasury yields rose +2bps last week to 2.66%. German 10y Bunds rose
+1bp (to +0.1%) while the Italian 10Y
spread to Bunds narrowed -16bps (to 2.80%). The US budget deficit soared 42%
for the October-December period compared to the same period last year. This
deficit will have to be financed in difficult conditions and some at the Fed are aware that it won’t be easy. Bill Gates warned about the soaring US budget
deficit yesterday.
Perhaps the principle of launching big infrastructure projects is more
appropriate cycle wise for Europe than for the US. It is only sure to start in
the US but things are slowly moving in Europe as well (the German Finance
minister launched the idea of a fund aimed at fostering innovation, Italy and
France will increase their deficits “together”). Europe has the opportunity to
borrow more to invest in infrastructure projects at more than generous borrowing
terms. Perhaps, it should start drawing on this advantage, now that it has
become clear that central banks are somewhat held captive of financial markets
in any case and in order to avoid an economically driven political degeneration
across Europe. The zeo rate is hurting (slowly killing)
banks, hence the economy. So, if zero rates are to serve some purpose, state borrowing
at that rate to invest in the future may not be a bad idea after all. It will necessitate a fundamental rethinking
of policy statutes from pure inflation targeting to a more pragmatic joint
pursue of growth and inflation. Europe, as an industrial export champion, faces
the same challenge as China (Trump will come back on the Europe’s trade surplus and its cars). Perhaps it should start counting on itself to
stimulate growth internally or keep looking at US fiscal policy crowding out
the rest of the world.
Credit markets (HY) outperformed last week with US HY spreads shrinking
-13bps (-92bps YTD) to 370bps and IG spread shrinking -8bps (-22bps YTD) to 66bps. Credit markets continued to squeeze like the rest
of the risk universe. US Car (consumers are the most behind in their reimbursement
since the financial crisis although admittedly on a much smaller market than housing)
and student debt loans dynamics are not good. The credit spread between IG and
HY spread is too low to differentiate the good from the bad credit but this is
all part of the same logic of a returning punchbowl and hunt for yield.
Gold gained +0.5% (+3.0% YTD), erasing weakness for the
week on Friday to end in a rather squeezy mode. China “reported” that it bought
another 12 tons of gold in January after the 10 tons bought in December,
reinforcing the outlook for bulls (inclusive of a generally gold bearish Goldman
Sachs) who are pointing at renewed solid central bank purchases this year.
The Goldman Sachs Commodities
index rallied 3.8% (+13.1% YTD) last week, supported by a surge in crude oil. Oil and DBC closed in break out mode on Friday (with Z-score at 2.2 and
3 respectively).
Trend Score Card
Click here for technical annotations.
US
& International Equities
Check out US and International Stocks’ Technical Trend
Status.
Fixed
Income
Check out 10Y US Treasury and Bund yields, their trend,
expected Fed rate moves and speculative positioning in 10-year Treasury Futures.
US
Recession Risk Radar
A comprehensive list of economic
indicators to compare the current situation with previous recessions.
The
Dollar
Check out where the Dollar stands Trendwise and Breakoutwise vs. G7
and EM counterparts.
Precious Metals
Check out where precious metals
stand Trendwise
and Breakoutwise.
Get a sense of options (cumulative open interests on calls and puts) and futures
traders’ sentiment (non-commercials open positions).
Why Trend Following Matters and How It Can Help
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economic, political and monetary developments is to assist readers investing in
global markets with a view on trend formation in all important asset classes.
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