Its been a couple of weeks since posting here due to holidays. Therefore its a double bill set of reports from the Swiss team as follows.
First up for the Swiss team we must say congratulations as they have again won this year’s Extel survey as best European technical report. Congratulations to the guys. Compared to the competition they deserve their win. When markets become ‘toppy’ they get harder to call so it is that the Swiss team’s recent tech comments haven’t played out to their script. On the positive side when the market has wrong footed them they have been able to digest and move on. This is a excellent. Overall it remains the best multi asset multi market world wide free report, in my and Extel’s view.
To this week’s report.
Given the run up we have enjoyed in the last 8 months or so the market internals are now all important.
The Swiss nicely recap where we are on the sectors.
Bullish technicals – financials, energy, materials (US materials), and technology. “We still see marginal new highs as a wave 5 overshot”.
Bearish technicals – transport, housing, utilities, and staples have “already topped out and the current moves are in our view just weak oversold bounces and therefore an opportunity to sell”.
Note that – from a relative perspective cyclicals have failed to break key levels versus defensives, suggesting that a new significant underperformance leg of cyclicals versus defensives is developing!
(As a macro comment on this technical picture – this plays into what we may think of this recovery as we have commented so often across the news flow and data we observe. Ie real demand falls as asset prices rise due to negative interest rates & money printing).
US wise the team have illustrated the possibility of the:
“risk of an earlier top than our favored late July/early August timing. If so, then it is very likely that the current bounce into deeper/later June will bring us our favored market top as the basis for a corrective bear cycle with an initial 10% to 15% correction”.
European equities:
“We would be a seller into strength and position for more downside into July”.
Emerging Markets:
“Sell any bounce in EM’s into deeper/later June”.
Having been on the “beach”, literally and mentally i’m in catch up mode here. The storm clouds are certainly gathering around us so summer holidays may have to get interrupted this year if this storm progresses quickly.
The bullion asset class looks in trouble here again. The bounce has faded for now. I maintain my allocation preferring not to technically trade this asset class though I accept the technical omens in the paper markets are unpromising for now. We have deflation circling us once again not inflation and until this changes the bullion is, at best, likely to drift.
The continued weak “recovery” post the 2008 collapse in world asset markets was and remains a crisis of debt or credit. Nothing has changed in this respect. On aggregate debt has not changed from. Sure the private sector, particularly smes have delevered. But this deleverging has been met by the central banks and governments increasing their debts. On aggregate little has changed. Meanwhile the social welfare and demographic issues hurtle towards us. The long term maths of the situation looks disastrous, as we all know.
In my view its right that we look closely at the technicals across the world’s credit markets. In such a high levered system what happens to credit markets will drive all asset markets as their prices are driven by the price of debt far more than issues of real supply and demand! The correlation is absolute due to leverage levels and real interest rates.
We have plenty of instruments and inter market sectors to look at across the debt markets across the risk curve and across the yield curve across multi currency asset classes. There is plenty of technical information that we should listening carefully to given the history of debt accumulation over the last 50 years or so.
I’m particularly watching corporate and high yield (or junk) bond markets across the various DM debt markets. Of note-able concern is the euro junk bond market which failed to confirm the recent higher highs in equities. The Jan2013 high was never beaten as euro high yield badly diverged from US high yield. You will note the relative euro equity weakness vs US equities since this jan/feb high junk high water mark.
A busy chart i’m afraid but take a note of the individual components and chart them separately if you prefer. The divergence is between the US high yield and euro high yield which is very problematic for Europe. Contrary to what Draghi tells us at press conferences there is a growing problem in Europe regarding lending to the SMEs.
Other internals worth monitoring, in my view, remains the piigs sovereign debt markets and particularly the nearer end of the yield curve. I monitor the Spanish 3 year debt markets.
The US 30 and 15yr mortgage rates should also be watched as key drivers of US consumer demand. Note the 30yr is back over 4%. Transmission is starting to weaken which should concern the Fed. Recall please that in many DM countries real incomes continue to fall. Only if debt is given away for free can demand be sustained and this asset market rally persist. All the above indicators above show increased volatility but no obvious knock out blow yet (other than the euro high yield). Credit markets therefore reconfirm the UBS call that its ‘too early to sell and too late to buy this market”. European markets have certainly topped, unless the ECB steps forward meaningfully and quickly!
There is much more to say here and now but I don’t want to delay providing this report any longer than i have.
Here this weeks report:
And below last week’s report which i was unable to publish as usual as I dropped my phone into the sea from the yacht we were on for the week. (I should add here that my wife was over joyed!)
Here last week’s report:
From the week of the 11th report i’d pick out this para:
“Given the forming momentum divergence in the US 10-Year Treasury chart we see bonds moving into a tactical summer bottom (yield high), which implies the start of a significant set back in yields into Q3/Q4 and finally into Q1 2014, where we have the next major long-term cycle low projection”.
In summary. I wouldn’t lose too much sleep quite yet.
We are starting to get into the summer silly season.Volumes in many asset markets remains historically low. So long as central bankers don’t step back its unlikely we get a summer disaster here. I’d more be inclined toward a summer distribution phase here. Though emerging markets and to an extent European markets remain a key concern and more inclined to summer weakness. Some debt markets do look relatively cheap vs the falling inflation expectations. Cyclicals remain in deep trouble. Contrary to UBS i believe the defensive hunt for yield should persist albeit possibly on a relative basis. The same themes persist, in my view, as we have witnessed for the last few years.
The key to these phase of the market remains central bankers influencing debt markets with unorthodox monetary actions. If they (ie ecb!) increase these actions defensives will continue to be bought. If they step back yields will rise and equities will fall. Not much appears to have really changed in the last few years in spite of the market noise of “recovery”.
All the best
Rich
(10 votes, average: 5.00 out of 5)
Loading...