Sunday,
February 03, 2019
Dear Reader,
Please find below our latest
Weekly Trend Update providing some
high-level indication of the trend status for major asset classes.
For your convenience, we have
added further explanation on how to read the trend status report.
For last Friday’s Markets
Snapshot, click here.
For last Friday’s Global Chartbook,
click here.
For last Friday’s Global Tactical
Portfolio update, click here.
Have a nice evening.
Marc
NB: To start receiving more
trend signals, economic releases and much more, set up or update a profile here.
Trend Status Update:
The S&P500 gained +1.6% (+8,0% YTD)
last week. While the market was already anticipating no more Fed rate hike, the
Fed signalling last week remained surprisingly dovish with the next policy move
said to now be either a rate hike or a cut. The Fed also ditched the auto pilot
on its balance sheet (QT) normalisation. Read ... it is likely coming to an
end. Other central banks conveyed more dovishness ahead. The Bank of Japan recently shaved its GDP and
inflation forecasts with its balance sheet continuing to expand, albeit at a
slower pace than a year ago and its benchmark 10Y yield again offering a
negative yield. German bund yields might be heading the same way (now
+0,17bps). The ECB lowered its risk assessment before taking onboard updated
staff projections which is unusual and the consensus is now for the ECB to come
up with new long-term loan facility to allow banks to roll-over current
borrowings before they fall into short-term funding regulations.
With the notable exception of European banks, this
led to an acceleration in the all-round short covering of risk assets ... and a
panic fear of missing out as psychology went in the space of one month from an
indiscriminate urge to sell everything from government bonds, credit markets,
stocks, EM stocks bonds and currencies, commodities and precious metals to ...
an indiscriminate urge to buy everything.
From a pure trend basis, nothing changed last week on
any asset class. Most equity averages remained below their 200dma with momentum
petering out on Friday as Europe refused to play ball. Banks in Europe traded
lower (and Italian spreads widened as the country printed a second consecutive
quarterly economic contraction) on lower growth prospects (bad for credit) and
lower rates for longer (bad for banks profitability) …France stood out
positively, with the CAC supported by LVMH excellent results while Germany was
dragged down by weaker economic prognosis, weaker numbers and by a violent “air
pocket” in the Fintech Wunderkind Wirecard (which
replaced Commerzbank in the Dax) on solidifying presumptions of accounting
wrong doing (FT
article).
The Dollar
index dipped -0.2% last week (-0.6% YTD). Dovish Fed pronouncements were
logically accompanied dollar weakness and a broad rally in EM currencies.
The EM
currency index made further progress in “bull” trend territory (see chart below),
led by the Rand (which touched its upper Bollinger band) and Brazilian real
which gained respectively +2.2% and +2.9% last week.
Credit markets (HY) healed (or rather further squeezed), supported by the accommodative
stance conveyed by the Fed, the ECB and the BoJ last
week.
Gold added +1.1% (YTD +2.7%) with the entire complex remaining the strongest
in terms of trend. Silver dropped on Friday as it always does on option
expiration (to prevent deliveries). Gold shares (GDX) were the sole item to
break out last week with Z-score of +2.1, next to the CAC (Z-score of +2.1 as
well) as of last Friday.
The Goldman Sachs commodity index gained+0.9% (+10.4% YTD) last week with the sector
standing among the strongest in terms of total return this year (but not yet in
bull trend given that it was so weak last year).
January delivered a stellar month last year but the
rest of 2018 did not turn out as well. Admittedly, Central Banks are putting
the punch bowl back on the table and this is a major change from last year.
This will help prolong the cycle (growth and credit) which remains in late
stage with global growth and earnings still heading lower. The US has this tendency
to focuss on the US Non-Farm report which came out last Friday better than
expected) which remains a “survey” report, subject to heavy hypothesis (in
terms of virtual jobs assumed to have been created) and revisions and which
also does not measure “underemployment”. Other indicators (see the recession
risk radar picture) depicts less favourable metrics in relation to where they
stand compared to previous recessionary episodes. The latest and most striking
example cited by Gundlach last week and D. Rosenberg was the difference between
the “expected” conference board confidence and the “current” conference board
assessment (last panel on our US recession radar chart) which has never been
that low without going into recession. Perhaps this difference will be tweeted
away by D. Trump when the Dow breaks 25’000 again. Still, JPM estimates the
probability of recession this year at 40%. Most economic data “abroad” are also
coming weak and weaker than expected, notably in Europe. So, perhaps we can
ignore all US data that will be “artificially” depressed by the government
shutdown and keep some excitement for a Sino/US trade deal (it is coming and it
will make America (look) great again!) but it might also be time to keep
dancing whilst staying close the door.
BoE, the Central Bank of Mexico and Brazil meet
next week. There should not be much news on Brexit next week (although at this
stage we are 6 weeks away from a hard Brexit)
and it seems the Maduro regime is on its last rope (having ceded to the
European request for early
elections and with one general breaking
rank as well). China will be closed this week.
Trend Score Card
US & International Equities
Govt Bonds & the US Recession Risk Radar
The
Dollar
Precious Metals
Why Trend Following Matters?
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