A new trading week awaits us with some key equity index levels as well as fx levels fast approaching.
First up a very useful report from citi.
They are bullish for this week on the bullion, WTI, and bearish the GBP. On WTI if price breaks the 110 level 145 will come into play. This is all bullish commodities in general should oil breakout like this. And in turn this would feed into the cyclical themes out performing the defensives. As the cyclicals are a larger portion of the market’s capitalization, if they are correct, this would be bullish for the equity indexes initially. Obviously much higher commodity prices would eventually squeeze equities negatively. The correlation between equities & interest rates and commodities is eventually negative not positive though in the early stages the relationship can be positive.
The report is here and its not that dissimilar to the recent MS view re oil breakout and bullion strength near term.
And picking up on similar themes of US$ strength, GBP weakness GS here:
Market participants like to herd. They concentrate their fire power to roll over corporates and investors forcing them to cover or hedge positions. This is how a margin is made and it works when participants group together. On the forum pages we often call this the ‘circus’ coming to the instrument. The GBP is truly in their sites on the fx side of things. The data has been better but there are few buyers for the pound even on good news. On any bad news the gbp will fall and fall far. Oil is becoming an interesting instrument again as momentum is increasing and when oil gains momentum she can really start to move quickly. Note when the circus is unable to roll the instrument over into they are forced to cover their positions and hence you see “fast moves from failed moves”. There is a bear attack move underway on the gbp at present it seems. Whether the moves works we cannot predict but she has some momentum and more are joining the attack it seems.
Here some macro comments from WF.
Weekly here:
WFWeeklyEconomicFinancialCommentary_07122013
Monthly here:
WFMonthly Economic Outlook_07102013
One of the great market issues here, at present, is whether the cyclical story can gain weight to allow equity indexes to move higher. QE continues as does the MBS purchases and ultra low rates. Japan continues on her own stimulus program but rates have risen in the last 6 weeks or so globally and as Citi point out US consumer confidence surveys couldd be a good clue as to whether this cyclical story will gain weight or if the tappering talk and higher rates have already done their damage on the great US consumer’s appetite to add more credit and consume.
Here’s hoping for a profitable week.
All the best
Rich
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