Summer time continues in the price action in major developed market equity markets. We have a fair amount of chop here alongside low volume as participants hold back from committing in either direction. As we know the run up to this period has been off the back of weak breadth and momentum and so the probability remains to the downside. Although the exact timing, as commented, can be hard to pin point. September remains historically the probable seasonal window, and is my own expectation. And worth repeating that a technical sell off rather than a cyclical or secular change of price trend.
Fundamentally, much is made at the moment of the positive US forward earnings for 2017 and 2018. We must recall the terrible earning disappoints of last year as well as the fact that half the sp500 improvement in earnings is coming from one sector. Ie energy due due to the slightly higher oil prices. (Yardeni below).
For my own book i have sold some SPY etfs at the 245.15 area. Its a level with a high conviction but it is a price area of high conviction. (Stop being a little over the 1.6% prior absolute price high in the instrument). Technically nothing much has changed from the prior “Swiss guys” report.
European indexes inc the Eurostoxx50 have already corrected and are down near 10% on prior highs. As the Euro is up near 14% vs the US$ this price move appears very logical. Eurostoxx50 correction starting exactly on the euro breakout vs the US$ in May17.
Many Asian indexes have pushed higher still eg the Hangseng overnight or the Taiwanese index and even Mexico has good momentum and like to achieve new record highs very soon. Even China, in spite of the n.korea issue made a new high yesterday of her 2yr range providing further signals that she may have ended her cyclical bear market started mid 2015.
US Treasuries on the ten year appear still price benign at 2.20% due to scaling back of the US hawkish tone although there are some signs globally that rates are on the rise via sovereign bonds eg Singapore although its fairly muted at present. No signals in Euro periphery bonds but the ECB is of course still in the market.
Some markets are moving and one sector, in spite of the basing of the US$ and fairly benign forward rate and inflation expectations i add, is Copper. Copper continues her price technical breakout of her 2011 2017 down trend. The cyclical change of trend is confirmed. At from a multi decade basis the secular trend looks still in play.
Individual copper miners like Anto continue on achieving new highs today again. Copx the US copper miners is lagging and has not followed the underlying higher, for now! Very positive correlation for silver prices. Needs to get above 17.50 on moment, for US silver.
Gold also has plenty of price support here but has not yet broken out to higher recent highs.
Historically the miners always appear to leadthe underlying asset class. So it was we saw copper traders and miners move prior to the underlying in 2016. On this basis the recent price moves of the GDX and individual stocks like and other gold miners appears supportive of higher gold prices to come. We need to see that magical combination of higher highs in price off the back of big momentum to prove insiders are moving heavily into the instruments. If that confirms on gold as it has on copper then this would send lead indicator confirmations for correlating (inflation) and inverse correlating asset (bonds, reits, us$).
Its worth adding that commodity indexes, with their heavy weighting to wti and brent and concealing the commodity price signals here.
Also perhaps needless to say but I’ll remind anyway that rising inflation, bond prices and particularly the state of stagflation are negatively correlated to real returns for stocks especially if stocks enter this period of very compressed price earnings, ie like today.
Here Fitzpatrick:
Here Meisels:
Here SC
Here Commerz on the bullion:
Here Yardeni
By Yardeni’s work, it looks like SP500 OEPS annual earnings will make it back to the 2014 same earnings level. Wayy to go Sp500 companies. On top of the annual improvement being attributable on a 50% basis to energy cos this optimistic earnings picture appears all about the US$ movement than much else. Along side revenue being down and margins being down for 2017 its not great. The “gravy”comes, as always, down the line in 2018. Lets hope so.
The guys back from their summer holiday, so for next week the reports as usual and doubtless a busy September.
The best to all.
Rich