The guys are back from their holidays but with a shortened report here.
They pick up on the renewal of the commodity bull story which is the headline story in asset markets for me. Note GL, Anto, BHP (all of which i hold again). Commodity producer charts have surged over the last few months. Aside from Asia basing the inflation story is starting to emerge here albeit still at very low nominal levels, using the official data. Also the the positive gold pattern in US$s which again is likely an asset market indicator for inflation. (I should mention other gold fx patterns are also showing potential longs here in the jpy gold).
US indexes the problems with the cyclicals do remain or especially for the banks and transports. Its worth reiterating here that the market breadth on the latest index price breakouts ie SP500, Dow and Nas100 the tech breadth was extremely low and non confirming. I wont run through the various breadth charts as hopefully you have them but it was a clear signal for at least some sort of mild retrace here tactically and certainly not worth chasing if you are late to the recent moves.
Europe wise, the breakout Dax (a cyclical index) is a key market to have broken out not yet joined by periphery euro markets and not yet propelled by the eurusd pair. The ftse100 likely to soon breakout of her key resistance long term level due to the combination of commodity strength and gbp debasement. The team fail to pick up a few key instruments on this week due to their shortened time back. The two or three key markets to mention are the eurusd and usdjpy pair. These two define much in terms of global liquidity now as well as asset price inflation. Technically speaking of the two the usdjpy is at the key 100 level. A break down below this might send the pair into a new extreme volatility and this may present a fairly strategic macro trade allocation (with wide stop) short the jpy and possibly long gold listed in jpy.
Getting a pin point entry on this trade will likely be near impossible as it’s success will be all about the policy response. The team don’t mention the nik225 which is struggling here given the jpy strength. Asian markets are the recent out performers and the hsi has an excellent pattern. As mentioned last week oil based and the entries were nice and clear so we have to suppose some big allocators are back in the oil markets, long.
Without delay here the Swiss team’s latest to hit the wires an hour ago or so:
Here Fitzpatrick’s latest two reports:
A quick point on the gbpusd. As mentioned on FX pages in the forum the cftc was at record levels short the gbp. You had to know if you are in the trade short the gbp that given the mere slightest whiff of positive uk news or rather better than the dismal expectations then those late to the trade would be forced to cover and the gbp could add significant strength on a tactical basis just from those late covering. If you have been knocked out the latest inflation data is hardly strength and it will hardly prevent the BOE from debasing the GBP. It merely presents a better entry short the gbp. Patience to wait for the better level and the trade will whipsaw back down soon enough. Ftse100 entries will also show soon enough.
As a thought if we are on the cusp of seeing higher nominal inflation numbers start to feed through there will be a blood bath in the fixed income markets. I suppose the initial contagion wont be bad but given the compression in rates has been so dramatic many large funds and particularly pension funds will bleed an awful lot of capital in the coming reflationary period. Many of these providers have locked themselves in at the long end to huge losses for their clients. Liquidity is extremely poor in long end credit so any exist will be hugely expensive. There will be some contagion but much later I suppose. Clearly there is no exist strategy for the central banks buying at negative rates other than let the bonds time expire. Shrinkage in central bank’s balance sheets will clearly take a while therefore.
Well i’m still on a partial long European holiday myself but i’ll try and update this if i can as reports come through.
All the best to all for now.
Rich