We have seen some “choppy” price action in both equities and FX in the last week or so but the larger trend directions are the prevailing themes for price. Unless there is a serious news development price will travel along the path of least resistance. For equities that means higher prices and for FX the theme of US$ strength continues for now.
Technically speaking 2015 has not been promising with all technical indicators across almost all US indexes showing divergence across the board. Only smaller cap sp600 looks more promising with no divergences and therefore technical price confirmations of the recent moves. Fitting it with the macro we can make sense of this from the US$. Larger cap earnings must be weak due to the US$ strength as their earnings are stated in US$ and their incomes are global. SP500 per share earnings for the latest have been revised down for 2015 to $120 a share. 6 months ago this projection was $145 per share.
US internal strength leading sectors, continue to send mildly positive price signals. Dow transports have been in a range since Nov14. On the plus side near term they have not broken down out of this range so strength remains. Sox index looks ok. She hasn’t broken down so the trend continues. Important US housing threatens new breakouts. (So long as the UST remains so strong ie yields so low US housing’s trend is likely to hold. US Banks recent trend strength come off a little but new highs beckon. They indeed promise much if US yields rise and the ‘recovery’ holds.
Macro data wise, global LEIs have crashed downwards just as the US$ has surged upward in value. The combination has horrible earnings implications for US corporates.
Nonetheless we must trade what we see. The dips have been shallow and the price action is supportive of higher highs even for US equities. For global equities higher highs are a higher probability than for US equities given the tailwind of FX and lower relative valuations. LEIs have based in the rest of the world at a lower level and have upside potential whereas US LEIs are stalling at a higher level. FX is adding a beta to these LEI trend changes.
For my book, I continue to like and allocate (naked long with low leverage levels, for now) toward Euro and Em equities.The tailwind of Euro weakness is likely abating I’m therefore starting to hedge the euro strength scenario but tactically playing on a shorter timescale for the possibility of one last leg downward which would be a strong buying point for the euro or likely better US$ priced bullion.
Capital gains wise, its been the strongest opening quarter to a year i can recall. It just goes to re-enforce to me how important it is to trade price and be always open and flexible to take what the market presents. Trading according to a more rigid cyclical model in asset markets can badly handicap your flexibility even where you are directionally correct.
Without more delay here the Swiss teams’s latest.
Its the usual outstanding report. I have little to add other than watch and allocate on dips to Spain’s Ibex35. Technically very promising, ditto ftse100. Dax relatively more limited upside imo, though i do still hold and am likely to until early May.
Here Fitzpatrick with his latest from Friday last week:
Note,
“if the overall multi-year bear market is going to be similar to that seen between 1992 and 2001 then we should head towards the 0.90 area by early 2016”.
You can’t underestimate the sort of effect this would have on the structural workings of the global economy let alone for individual companies. As one sector example, Boeing will be a big loser, Airbus and RR winners. Assuming Fitzpatrick is correct.
And here GS with their technical run through:
GS changing nothing this week maintaining their high conviction trades as before. Short GBP vs USD. Long Euro Stoxx 50, Short Bullion.
Levels wise eurusd and gbpusd pretty similar as near term targets to Fitzpatrick above.
Here UB with their outstandingly useful technical chart run through of the major US equity names.
Recall if you are a technical buyer of any of the names above the FX earnings implications of this strong US$. Tech issues are less price sensitive but otherwise allocating to cos more exposed to the domestic US economy is likely to have more upside that globally exposed cos.
Here CS with their regular tech weekly update.Taking a cautious approach here.
And here MS with their run through on the major FX pairs.
They are seeking a consolidation phase for the US$ but unlikely weakness.
And here CS with their Q2 Macro forecasts & comment
Its a wide ranging pretty optimistic US centric view. Escape velocity to be reached from zirp. We shall soon see.
And here JP taking a look at the global macro data flow:
And here the excellent, very useful JP Flows report:
So many excellent charts here. The outflows from US equities clear. The lack of credit creation by the euro zone still telling. China credit creation stalling would present a large hole in global MS growth.
And here RBC with their latest macro comments:
And here a new tech report from ICAP:
Here Barcap with their latest FX tech report issued earlier today:
All the best
Rich
p.s. just off the wires a great report from yardeni on the world’s central bank’s balance sheets and securities. The US operates her gov sponsored MBS entities so these should added to the FED’s balance sheet imo.
For all the Euro area talk note the ECB’s balance sheet has shrunk -40% compared to its level 3 years ago.
The FED is the stand out winner (in ms creation terms) by a factor of x5 over the last 7 years.
The BOJ’s balance sheet has expanded by a factor of x3 since 2008 coming in a strong second. To be fair to the BOJ’s money creation credits she operated a larger balance sheet than the Fed entering the crisis due to Japan’s long recession. Therefore her starting level was higher than the FED’s. Its a very honorable second place effort by the BOJ therefore. Likely she will take first place in the coming years as the world’s greatest money creation central bank.