Well no great surprises for readers here as the US$ has indeed debased and so the party can continue another leg with all the implications this entails re capital flows into em markets, commodities, bullion etc. Breadth across the US indexes remains weak but as a continuation within this leg of this bull market is just about enough for right now according to my practice. Price needs to move a little higher to really see more clearly the sustainability of this rally but as said prior price momentum has been strong the last 2 weeks in key sectors. Transports and semi conductors, finance, tech, industrials all confirmed the higher high so its A ok for now. Cyclicals looking good vs defensives but Tips heading in the wrong way is indeed a divergent and therefore non confirmation signal. Money supply is not expanding sufficiently if global rates are indeed tightening.
The Swiss guys mention the positive correlation between the sp500 and Tips. I’m not so sure. On their own chart the whole 2013 and 2014 sp500 rally was against a back drop of falling inflation expectations. Much of the rally in recent yrs has been a monetary induced rally as yields have compressed on most asset classes and stocks have been the last yield standing. Obviously, nominally and relatively, that trade is now pretty full. A better positive correlation would be between IYF (financials sector) and Tips. Or even better US banking and Tips. The two are indeed positively correlated over the long and medium time frames. We have a wife divergence and presence so something needs to give soon. If financial prices mean revert to the long term correlation to tips then this would mean a significant correction that would have to spill over into the wider market given financials market cap and as a key market sector.
US risk aside its the EM based indexes that are leading the way and particularly indexes like Hongkong pegged as they are to the US$. China appears to have turned for now and the data is fairly positive near term. HSI being the defacto way to play china’s recovery. The STI also doing well but interestingly its the yield plays like the S-reits that have broken out and in some cases gone vertical. (Also note HK based reits like Champion reit, long ago mentioned).
The euro stoxx 50 and the various indexes are struggling under the weight of euro strength (+10% Ytd). If we are into the world of higher rates and higher inflation the indexes can move higher in spite her strength but if inflation expectations are fading and this is a global event then its possible we have scored eurostoxx50 highs. We don’t have confirmation of this yet so dax and ibex35 cfd longs and eurostoxx50 longs Im sitting tightly on for now. Also Ftse100 longs as before.
In spite of being in the long euro trade vs usd (and gbp) as 75% of my book is non euro based I’m struggling to break out to new record highs on my account even with the EM strength and positive fx positions. The combination of gold and euro assets weakening is offsetting the euro strength. No problem as in US$, i’m up over 20% ytd vs the sp500 up 7% YTD. In euros less impressive but still good.
The eurusd is the big news event and Fitzpatrick right to illustrate the key resistances coming up. The move has occurred on a mix of tech, faith and negativity to Yellen & Trump’s lack of action/stimulus. (And or Visaversa 0f course). The Eur GBP also at her long term res. In my view more reason for the Euro to sustain that breakout.
Here the Swiss Team’s latest:
And here Fitzpatrick
And here Meisels:
And here some em index beta charts:
And here CS on the euro
Back to the boat and staying cool.
All the best
Rich