Monday, February 25, 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.
For
last Friday’s Global Tactical Portfolio update, click here.
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Have
a nice day ahead.
Marc
Trend Status Update
S&P500 closed the week with a modest gain of 0.6% (12.4%)
while the VIX fear gauge dropped to four months low. Responding to weak Q4
economic numbers, the Federal Reserve via different speakers last week, evoked
not only the possibility of a higher balance sheet but of the most extreme
easing measure; citing as part of the toolbox the possibility of capping long-term
yield “a la Japan”. While the perspective of a looser global policy (including
in China) is lifting all boats, the equity segment remaining in breakout mode,
trading above its Bollinger band were Chinese shares (+2.3 std), supported by
optimism on a coming trade deal/truce with China.
Yesterday night, D Trump tweeted his optimism on his trade deal with
China.
“I am pleased to report that the U.S. has made substantial progress in
our trade talks with China on important structural issues including
intellectual property protection, technology transfer, agriculture, services,
currency, and many other issues”.
“...productive talks, I will be delaying the U.S. increase in tariffs
now scheduled for March 1. Assuming both sides make additional progress, we
will be planning a Summit for President Xi and myself, at Mar-a-Lago, to
conclude an agreement. A very good weekend for U.S. & China!”
The Dollar index dropped
-0.4% last week (+0.3% YTD). Chances are now for the dollar to go lower but the
thrust towards looser monetary policy also extends to the BoJ
(which said last week that it is ready to buy more bonds and equity ETF’s if
necessary and over the week end that it could target bond yields below zero) and the ECB (which is likely preparing another
TLTRO and a possible delay in taking rates away from negative territory). With
Germany only narrowly avoiding recession, European PMI’s still pointing
downwards and populist pressures on the rise, some economists are raising the
possibility and the rationale for more extreme easing by the ECB as well. Our
preference lies with emerging markets currencies in this context, more than with
an outright bearish bet against the dollar (which we believe will materialize
but perhaps a little later).
10y US Treasury yields rose dropped -1bp last week to 2.65% whilst German
10y Bunds were unchanged at 10bps (-3bps YTD). Italian 10yBTP yields rose +5bps
to 2.85% (+11bps YTD).
According to Lipper, investors piled on more IG and HY debt last week. Beyond
the decline in bond yields, other developments are crystalizing in fixed income
markets that are pointing towards more monetary easing. Bond volatility is
dropping, actually evaporating and the term premium (difference between long
term and short-term yield) is collapsing as well.
One could question the need for the Fed to even talk about extreme
easing measures near full US employment and as some inflationary pressures
start to build (the risk is rising that those will be ignored to allow for more
easing). The answer may be blowing in the wind of waning international
investors’ appetite to swallow ever larger quantities of US treasuries...just
as the US budget deficit is set to explode. The Fed will be ready as buyer of
last resort just in case. For what it is worth, over the week end in his annual
letter, W. Buffett lashed out at "those who preach doom" because of
runaway US budget deficits, probably for the wrong reason at this stage but his
voice counts as an influencer for what the Fed and the US government have in
store.
Credit markets (HY) outperformed last week with US HY spreads declining
-23bps (-103bps YTD) to 347bps and IG spread dropping -4bps (-25bps YTD) to 62bps.
Gold closed the week +0.5% high (+3.6% YTD) while
silver jumped +1.7% (+3.0% YTD) with the gold shares continuing to recover. With platinum 3% up move on Friday which brought
the metal above its 200dma, the precious metals complex despite a small
correction on Thursday, is now fully engaged on the long side in our trend
following model.
The Goldman Sachs Commodities
index rallied +1.4% last week (+14.7% YTD) and oil
rallied another +3% (+26% YTD). While most components of the commodity complex
still trade below their 200d ma, several of them are breaking out including
copper and DBC in our short list this week.
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
You?
The last months of 2018 have
shown how hard and fast markets can fall. Trend following offers guidance as to
when to get in and when to get out of an asset class with changing trend characteristics.
A disciplined and rule-based trend following investment approach can serve as
an effective portfolio insurance technique. Our purpose, beyond tracking
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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