Another week roles by and pricing of risk assets continues to diverge between US risk and world risk. US risk continues to be well bid vs the rest of the world. With the sp500 still close to record highs. Within the US markets breadth remains a key issue with some important cyclical sectors showing bad technical signals inc transports and banking. Japan remains very weak and Europe continues to be trapped in clear cyclical and secular bear markets.
Of notable mention must be the international banking sector which continues to displays yet more price weakness and especially Europe’s banks. Clearly the nirp policies are not assisting the bank’s which were already weak from the credit crisis of 2008 and subsequent recession. Rates have continued to fall and with it bank’s margins.
The cyclical bear market for bullion since 2011 appears to have ended allowing the secular bull trend to resume. Whether its a prelude to the ending of the 5yr commodities bear market we cannot say yet but there are some very positive price signals and the agriculture bull market has of course already resumed.
The Swiss team below offer some evidence of an impending ending of the 30yr (plus) secular bond bull market. I’d prefer to view it from the inflationary perspective. Ie that it appears core inflation is start to rise again and given levels of employment in the US and skills shortages in any DM markets (Germany, UK, America & even Spain) the seeds for inflation are already in place. Any additional stimulus or assistance for the banking sector via increases in the ms will likely result in increases in inflation. Rates must rise in response to this. Doubtless policy makers would like to sustain nirp for ever as nirp funds our policy maker’s deficits.
Here the guys:
Here GS:
Note the conviction 3 rating long for Silver. Its been 6 years or so since i last saw this.
Here Fitzpatrick:
You start to see the scenario for convergence between Fitzpatrick and the Swiss team. Coming US$ strength mainly vs euro fx, US index strength, Euro indexes being supported by debasement in h2, rates and inflation moving higher supporting commodities and bullion. The pieces are likely starting to fall into place save any black swan events, ie euro banking or china becoming a full blown crisis.
Here MS on the fx side:
Fascinating to hear the other side of the eurusd trade. The bank’s carry unwind trade is of course a great danger with the euro. The answer remains a technical one. Price will show the way and for now the eurusd chart is weak with near term resistances at 1.115.
Here the most recent CFTC care of scotia:
Participants are adding to euro shorts but not a contrarian level yet at all.
Gold positioning at extremes but as the market saying goes: “there is no fever like gold fever” once it starts.
All the best
Rich