Capitalsynthesis

A great report this week from the award winning Swiss team. This week’s report is a little broader than normal in the assets markets they have covered, which is good!

Their comments on fx and bullion tie nicely together.The US$ is enjoying a bounce here and now. Technically it doesn’t look likely to sustain for long with the levels clear now

Eurgbp. I’d just add that the euro cyclical bear has confirmed again today and appears to be offering another leg down. Its been a frustrating area of the chart for active traders but sticking with the trend of this pair has paid off and nothing on the radar to suggest forthcoming euro strength or sterling weakness. Indeed Carney appeared comfortable in recent statements re a stronger sterling which is supportive.

Their US equity index and sector comments are constructive for another leg up in the selective cyclical sectors. Nasdaq100 and Russell2000 have already scored higher highs, albeit, just.

Their euro market indexes comments are very constructive especially re Spain and the IBEX, and i tend to agree. There are scant fundamental reasons for the price moves but we are paid on price so lets stick with that.

It could well be that insiders know something we don’t. The recent price moves have displayed momentum and are meaningful. The breakout is significant. The move will attract new capital to be allocated, no doubt.

What the team have added this week in terms of breadth of asset markets covered they have lost a little depth of sector analysis, especially in the euro zone.

Let me add that the euro stoxx 600 sectors have bounced, especially the cyclical sectors. Contrary to Swiss team’s view, the Euro Banking sector has scored a higher high and its stuck now over the last couple of sessions which is meaningful. The Euro Autos (up 600% in the last 3yrs), Euro telecos, Euro oilers have all joined the party and a breakout of the oilers prior down trend is in motion. Potentially here ending a giant wedge price pattern which would be bullish if achieved. Together with the constructive patterns in oil and the US oil sector the breakout looks to be likely in the Euro oil sector. Euro retail has also broken out of her recent down trend and is approaching new highs as is euro travel and leisure. Overall its bullish sector wise in the euro zone. The laggards are the euro tech and industrials.

The team are forecasting an end Oct early Nov weakness before the end of year final positive price moves. I have no expectation on the near term weakness anymore. It seems to me, so long as no political misjudgement occurs whilst we may see some consolidation of recent moves soon we may not get much of retrace, especially down to the 1600 level they forecast for the next four weeks.

As a final comment, fixed income. The 10 year rates have settled back down. This is meaningful and supportive of risk. Technically the near term shows price support for the 10yr paper. The CS target forecast for 3.2% by year end appears unlikely now. The US 10 year T is at 2.7% or a positive rate of 1.7% over inflation rates. (The UK is showing about the same rate but the real rate is a whole 160 basis points lower as nominal inflation rates are so much higher in the UK). The spread to junk bonds in the US is at 400 basis points which is consistent with long term levels but could see more compression for as long as inflation remains so subdued and the economic data continues to come through mildly positive. Consumer credit wise the 30yr fixed rate US mortgage is back down to 4.29% which is 30 basis points cheaper than they were a month or so ago. Overall, interest rates have not continued their march up and have settled back down. This is supportive of asset prices inc risk and defensive sectors.

Without more delay here the report:

Wklytech-15-10-13

All the best

Rich

p.s. Just released today is the latest CS Commodities report which lines up nicely with the report above and extends the themes across the commodity instruments. Its in the VIP area as usual.