There is one story dominating everything at present namely: To taper or not to taper?
I’m very tempted to think this is a premature question as the FED is currently monetizing 85bn of securities a month and simply a taper of 25bn or less aimed at the short end of the yield curve could be a great short term strategy of effectively doing nothing. This would ensure rates stay lower for longer across the important 10yr treasury and therefore mortgage rate market and high yield paper markets.
But lets be clear rates for the US$ are all important and global capital is waking up to the potential ending of the zero interest rate world, soon. No where will this be felt more acutely than the fixed income markets. So here off a CS report on their recommendations on FI strategy. In my view, whether or not you hold fixed income assets doesn’t matter as what occurs in fixed income markets will drive all asset markets (as it did if you recall in 2008!).
Relative yields will be a key driver for fx markets going forward. In a world of world wide zero interest rates there has been little rate divergence in recent years to differentiate between the major currency pairs. As we progress this differential may widen with considerable fx pair implications. The weakest economies or rather those with the highest debt to gdp ratios will sustain lower rates for longer. This is a hugely important macro strategy issue that must be remembered, in my view.
Alongside the FED decision on the taper we have the announcement of the next Fed president with Yellen and Summers the two candidates. Which one is more dovish and hawkish remains an open question. Both are negative long term for the US$ as both are on record as desiring a lower US$ international exchange rate to rebalance the US economy. We also have the German elections and important German high court decision on the legality of the ECB’s debt monetizations.
To a few reports:
First, a few macro economic reports:
Here CS from 01 Aug13 with a visual chart pack summary on global pmis.
Here the latest LEI reading care of WF’s LEI index:
Here comment and details on the latest disappointing US housing data point today
(I’ll update here to include the weekly WF report here tomorrow as soon as i get copy).
Here a new regular report here the weekly macro chart pack from CS which sits neatly between the macro big picture presenting key technical chart levels for us.
I’ve been following this report for the last few months and I have found very useful as a reminder and walk through of the major global asset market technical levels. I can’t argue with many of their levels and calls. Although occasionally they under play the cross asset implications of resistances and supports breaking etc. A good example at present is the DX break or not of her support here and the all important eurusd breakout or not of her cyclical bear vs the usd.
And here continuing the themes above another new weekly, the CS FX weekly technical report. (Last week’s can be found on this Tuesday’s technical post).
The euro has already broken a key level vs the sgd here:
The Singapore economy is stalling here though her pockets remain very deep if the stall develops into something more pronounced. In essence, we have growth, albeit very weak growth, in the DM nations vs EM nations so capital flow is back towards DMs for now. Part of this is a partial reversal of prior capital flows as the trade had become crowded into the EMs and growth has stalled on a relative basis. The structural issue remain totally unchanged for the DM countries so a trading/investment opportunity may be on the horizon if this trend continues and the DM positive capital flows become over crowded. India is a good example of huge negative capital flows at present which is leading to a double whammy of the Rupee collapsing as asset prices fall, even in Rupee terms now. Should this continue we must vigilant for an entry into distressed rupee priced assets. But only on extremes as there are clearly structural issues India needs to address in the coming years.
The US$ has broken out vs the JPY of the bull flag and 3 month bear market vs the Jpy.
Bullion wise here the German team’s weekly tech view and comments.
BullionWeeklyTechnicals20082013
Every one is suddenly calling out the 1400 to 1425 level area as marking the top for this recent rally. A corrective bounce within a continuation of her bear market or something more?
And so we come around full circle to my opening para. The question for participants here remains, will the Fed taper meaningfully or not? Its so vital as the cost of US$ credit affects all asset prices worldwide. If the Fed backs away from the taper, or waters it down, the resurgent move in recent years of the US$ will be over as will the commodity bear market and the bond secular bull market may get a little more time therefore a corrective bounce.
Time will tell but certainly this September is likely to see increased volatility as these key secular and cyclical trends are tested in the coming months. We are approaching a test in so many instruments and asset classes. Is the bullion secular bull market over or about to resume? Is the commodity super cycle secular bull market over or merely resting? Is the bond secular bull market over or not? Will the secular equity (real terms) bear market resume or are we about to embark on a (real terms) new secular equity bull market?
On a cyclical basis there are even numerous instrument charts coming to some key levels as a continuation or breakout of their cyclical trends. In short a market defining moment approaches. We need to be at our best this alert Q4 2013 I suggest.
All the best
Rich
p.s. As some further food for thought a one off for you from the hugely respected “Mr Grant” here: GIRO-AUG23-13
Finally please don’t forget, we are still in August here. Its a holiday time and levels are less respected at this time. Have a great weekend all I’m off to the mountains to do some reading and homework. Enjoy whatever you are up to.
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