Another week has gone by but right across international risk there is very little new evidence from price here. We can look across US sectors like the small caps or russel2000 or transports or banking or tech sector or high yield or whatever you chose and there is no meaningful new evidence from price. Internationally inc europe and japan we have come up to some key levels. We are at Dax30 and Nik225 down trend lines but certainly no confirmation of breakouts as yet.
Fx is a little more interesting with the slow continuation of the eurusd in play ie weak euro. Certainly as commented here the only way, it seems, to send euro equities upward is a massive debasement more than already occurred of the euro. For those carrying Jpy and Euros, Super Mario and Kuroda will hopefully not disappoint to totally destroy their respective currencies. Both their financial sectors still have poor balance sheets and need nominally higher asset prices. Negative rates are certainly not helping but more money supply might i suppose short term. It would certainly help speculators.
Across key indexes we remain within a percent of where we were a week ago. Seasonally we have drifted into holiday period and volatility is starting to die as seasonally it usually does (last year aside). Summer months are usually – beta months for risk with September statistically a nominally negative month.
Rather than comment on the indexes and levels that we already know so well i want to mention the HSI here. The Hong Kong index has made a little more progress forward and is above key levels here. There is growing technical evidence that China may have based here and commodities and commodity currencies are showing relative strength on that basis. She is trading on the lowest pe ratio of any developed market at approximately 10. I have entered this trade long via the etf 2800 tracker, carrying HK$s given rates are so low and as the peg is questionable given the Yuan debasement and US$ continued strength as the Eur and Jpy slide (entered the jpy carry long nik225 some weeks ago at the lows).
In terms of breadth both Sp500, Nas100, Dow are showing non confirmation at their recent new highs. Dow at a std of +2 which is reasonably strong breadth nonetheless but on the short term non confirming. Sp500 Nas100 a little weaker and suggesting near term weakness.
Reports:
This week the swiss team are on a richly deserved holiday so lets cut to Fitzpatrick, GS, MS, LC etc..
Here Citi’s tech guru Fitzpatrick:
Another bullish tone from Fitzpatrick. Dollar bull alongside equity strength and commodity strength. Another 2007 nominal melt up for risk appears to be Fitzpatrick scenario. Nominally i tend to agree once we can establish a change in leader ship across risk ie cyclicals need to lead this and nominal rates, different to real rates of course, need to starting leading this.
And here GS’s charts and trade recommendations:
And here:
Conviction 3 longs on the major US indexes. Correct so far. Text book i would disagree in terms of correlating instruments but so tactically and individually technically looking good. Nice to see continued longs on commodities.
Here LCapital:
And here Barclays equities with their H2 report:
And here MS on the fx side:
And here StandardC:
And here Scotia with their reading of the cftc report:
Of the two major fx trades at present i am involved in, the euro shorts are accumulating but nothing like where they have they been historically. Has room to run and certainly plenty of room depending on Thursday’s “action” from Draghi. Secondly the Jpy vs USD. The market is still positioned positively for the Jpy from this report although i strongly suspect its a fairly even market as of today. If Kuroda acts there is a lot of room still to run on this pair hence i’m remaining with the carry for now on the entry from jpyusd at the 100 level.
Final comment from me to summarize. Across risk we still have some technical problems in spite of the apparent sp500 and Dow bullishness. Weak seasonal months ahead suggest weakness should emerge to allow over the coming weeks to allow the shift in leadership to occur. On this tactical weakness a good strategic entry long should emerge. Europe still needs to resolve its banking issues and over come plenty of resistance levels. Asia based and looking stronger. Divergent monetary policy between dm markets likely to drive the US$ higher in the medium term though against a medium term positive background across all risk assets.
All the best to all and welcome all the new joiners in the last few weeks.
Rich