We are still in the Summer recess here across world markets but its noteworthy to record the observation that divergence between world equity markets and US equity markets is at an all time extreme standard deviation.
This is a trade set up but seldom has the likely technical directional forecast been so clouded as now, given cyclical index under performance and additionally so many world indexes well below their 200 moving averages and indicating shorts not longs.
From a macro perspective the reason for this is very clear as US public deficits widen dramatically to back over $1trn for 2018 2019 and the cpi hitting 2.9% on the most recent print. In spite of the higher inflation numbers the US producing a 4.1% jump in GDP on the last print and a massive 25% increase in CAPEX spending.
Sector wise, within the US, we can see the market pricing this correctly in the smaller domestic focused US S&P600 and Russel2000 providing the beta as untroubled by the head wind the stronger US$. Beyond these domestic indexes the usual US cyclical lead indexes are struggling and not leading. Whether this is summer chop or something more meaningful remains to be seen.
For my own book of assets I’m leaning towards the seasonal tail winds of Oct Nov Dec as providing the basis of a year end rally in world equity though the price action throughout Sept will be telling. For clarity the long US$ cash and short GBP and EURO with equity exposure only to fairly defensive yielding issues has been correct thus far though the july/aug rally in US indexes has be a directional surprise. Dont chase yet would be my near term call. Bullion has disappointed over this summer.
Ill update this through out the weekend inc reports etc.
“Normal” fortnightly (albeit MIFI2) service will resume from Sept.
Kindest regards
Rich