We are still not assuming that the Fed will raise the FED Fund rate this year, so, consequently we see US equity markets may trade down within the “normal historic period of seasonal weakness” from May to September, which has been between -8% and -10%, before then a later FED move on raising rates may circumstantiate a more pronounced correction for equities in the US, and globally, to the tune of a -10% to -15% correction.
Category Archives: Banking
Morning Market Commentary & Weekly Charts
International events could have an impact on equity markets this week. The Greek government is close to running out of international currency to pay its debts. Negotiations continue. Discussions about framework of the Iran nuclear agreement continue. Venezuela is close to government breakdown. Terrorist hot spots seem to surface on a regular basis. Economic news this week is expected to show a slight recovery in the US economy in March from the weather related slowdown in February. Focus is on March Housing Starts to be released on Thursday.
Morning Market Commentary
Stocks around the world ended with marginal gains on Wednesday as investors digested the minutes from the latest FOMC meeting and awaited earnings from Alcoa after the closing bell. The S&P 500 Index continues to hover around its 20 and 50-day moving averages as investors refrain from any significant directional bets given the reporting season ahead. In the midst of this near-term hesitation in the US, global equity markets are excelling, outpacing the returns of American benchmarks.
Morning Market Commentary & Weekly Charts
Seasonal influences turn strongly positive (possibly due to anticipation of good news released by CEOs at annual meetings when they release “difficult” first quarter results e.g. stock splits, share
buy backs, dividend increases). We are advising investors to accumulate seasonally attractive economically sensitive North American and internationals equities, with the exception of Japan
(due to March 31st being end of fiscal year, and a consequent -8% – 10% historical sell-off affecting Japanese equities from April – July) on weakness this week for a seasonal trade lasting until at least May.
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2015 Q2 Global Investment Strategy
Equities globally still offer the best risk-adjusted returns compared to most other asset classes. Overall, for the broader equity markets to go higher, we need to see a rotation into the more cyclical sectors and into the financials. We prefer sectors like Energy, Industrials, Materials, Financials, Utilities and particularly public infrastructure themes for Europe, the US and Japan, where valuation measures look less demanding, with increasing cash flows, and high yields and growing dividends like particularly in Automotive, Energy Industrials and Basic Materials. Chinese, Indian, Brazilian and Russian equities have entered their period of seasonal strength, and hence why recommend to stay overweight the Shanghai Composite, and increase weightings into Indian, Brazilian and Russian equities for Q2 2015. European equities remain cheapest on an absolute basis and and the relative valuation discount to bonds has improved over the past months, particularly since the ECB started QE. The much weaker Euro in combination with with much lower commodity prices for champion European industrial manufacturing and luxury manufacturers companies will help exports and increase earnings in 2015 beyond consensus estimates. European equities with much higher dividend yields than anywhere still offer much better risk-adjusted total returns. We see increasing M&A activities to be a big theme in Europe and help drive equity prices higher. However, Q2 in Europe, like in Japan and the US represents the period of seasonal weakness, and will offer better buying opportunities ahead.
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Strategy Update: China
China forecasts and estimates are likely to become very sloppy as government guidance begins to lose its quality of certainty that many forecasters have relied upon. The most important question has always been whether Premier Li Keqiang can implement the necessary reforms to ensure that the economy will grow in a long term sustainable manner. Foreign investors continue to flee from China. The media negatively impacts foreign investor sentiment by drawing negative conclusions as it highlights the slowest economic growth in more than two decades juxtaposed to the double digit growth of an earlier era; for them the glass is always half empty.
Morning Market Commentary & Weekly Charts
International events will influence financial markets including the election in Israel and evolution of events in Greece. Economic news globally this week is expected to show a mild improvement relative to comparable reports released at the same time in February. US economic focus this week is on the FOMC meeting and news conference on Wednesday. In the US, stocks drifted lower on Friday as investors jockey for position ahead of this week’s FOMC meeting. FOMC meetings where a quarterly press conference has followed are thought to be the most probable time for the Fed to announce its first rate increase; the next opportunity won’t be until June 17, therefore it is no wonder that investors have been reacting in the equity, currency, and treasury markets much more
significantly than past meetings.
Morning Market Commentary
The parabolic rise of the US$ is finally becoming a discussion topic amongst the global strategists, asset allocators and analysts, so that now we start seeing US government officials coming out of the woodworks and starting to comment on the exuberant strength of the US$ hurting US industries and the inherent lack of competitiveness.
Morning Market Commentary
US 30-year treasuries peaked at the end of January following test of trend line resistance; since the price of the 30-year treasury bond has traded lower by around 7%, now testing the middle line of the long-term rising trend channel. We are assuming the price trades to the lower limit of the rising range, a decline of around 13% (to $130) from present levels is still implied.
Morning Market Commentary & Weekly Charts
We are not fearful of a Fed rate hike, as that is typically good for stocks given that it means the economy is in good shape and stocks stay on the uptick for 2-3 years after. Plus, worldwide government bond competition will lead more investors to US Treasuries to keep a lid on rates and thus continue to make stocks look attractive by comparison. Our views for 2015 (as for 2014) of the global investment world differ substantially from consensus, and applied by other investors on Friday. Yet when level heads prevail, however, it may take the market 3 – 4 months, as it has
in the past years, we think that more people will come around to our investment views and conclusions. As such, we believe that this is a buyable dip for US 10-Year government bonds with higher highs on the way for 2015. For now, US bonds are still more attractive to investors than US stocks.
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Morning Market Commentary & Weekly Charts
We continue to advise investors to increase allocations towards Japanese equities and towards the $NIKK in particular, as we see the structural changes made by Abe’s government gaining traction and delivering tangible results, and Japanese investors increasing exposure into domestic equities. Historically, the N-225 is in a period of seasonal strength from January until early April (in part due to fiscal year end {March 31st} window dressing related performance).
As we had been expecting, European benchmarks have been outperforming US benchmarks since the beginning of the year, mainly due to the much lower valuations attracting investors (P/E; P/CF; much higher dividend yields) but also benefiting from the accommodative monetary policies enacted by the ECB. We see increasingly technical evidence of the strength in European equity markets set to continue, following historic seasonal strength patterns that run through to the start of May, which is coinciding with the end of annual dividend pay-out period.
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Morning Market Commentary & Charts
After the FOMC meeting notes, it seems that Ms. Yellen is now altering the FED’s focus away from employment, GDP and other determining interest rate policies’ factors to one of the economic indicators, which we had been highlighting as one of our main benchmarks for our forecasts on FED related policy changes, and our 2015 assumptions on “No FED rate hike until 2016!”, namely consumer price inflation indicator (CPI).
Morning Market Commentary & Weekly Charts
Equities globally rallied on today, boosted by news that Greece has reached a deal to secure a loan extension with its creditors. The German DAX 30 and the Dow Jones Industrial Average charted a new all-time closing high, following the S&P 500 Index and Russell 2000 Index, which charted all-time highs earlier in the week.
Morning Market Commentary
We maintain our baseline forecast for 2016 of “No FED rate hike in 2016”, as the global inflationary pressures are still declining, and we see increasing macro-economical evidence of the US economy slowing, and of our baseline forecast becoming more widely be accepted both by central bankers and by market participants. Consequent to the market slowly adapting to our base line scenario, we do see a strong case for renewed allocations towards high yielding equities mostly outside of the US, particularly in the case of Japan and Europe, as those equities markets have entered their periods of seasonal strength until April for Japan, and mid-May in the case of Europe. In the US, dividend yields on S&P 500 stocks are competing with yields on 10-year Treasuries. Higher Treasury yields (i.e. lower Treasury prices) could prompt additional rotation into equities.
Morning Market Commentary
Seasonally, treasuries trade lower between now and the end of April as investors take on more risk in the equity market; the month of March is by far the weakest period of the year for the treasury bond, declining by an average of 1.6%. The 30- Year Treasury Bond has declined in March 87% of the time over the past 24 years, a significant frequency for any asset class. Bonds seasonally come back into favor during the summer months when investors tend to be more risk averse.
Morning Market Commentary & Weekly Charts
Treasury bond prices are vulnerable to further technically corrective declines, particularly given that we are in the midst of the period of seasonal weakness for the asset class; negative seasonal tendencies persist through April. However, over the past 30 years, each time the long-term treasury bond has met up with this rising level of resistance, stocks have generally performed well in the months and years that have followed. However, we continue to advise investors to trade bonds according to their long-term trend channel dynamics. We see nothing fundamentally having changed over the past 2 months for that trend to change.
Morning Market Commentary
Early technical signs have surfaced that 10-Y US Treasuries are rolling over from overbought levels. However, as we noted repeatedly over the past 10 months, due to falling global
inflation, we see any temporary small correction of 10-Y Treasuries as another reentry point for investors, as we anticipate for the yield for the 10-Y Treasuries to fall at least towards 1.3% in the coming 2 quarters.
Morning Market Commentary & Weekly Charts
Stocks are trading at extremely high valuations against a backdrop of slowing economic growth and rising global financial and geopolitical instability. Market cap to GDP ratio is currently at twice its historical average. The Shiller Cyclically Adjusted P/E Ratio (CAPE) is at 1.7x its historical average. The forward P/E ratio of the S&P 500 is currently 16x versus an historical average of 14x .
Morning Market Commentary & Weekly Charts
We believe that the US$ impact is not at all factored in by sell side analysts, and will make for a nasty surprise in the coming quarters in 2015. The price of the long-term bond continues to bump against trend line resistance that has spanned the last 30-years. Should this trend line hold, the long-term treasury bond may succumb to selling pressures following the Fed announcement. International market ETFs including Emerging Markets and European equity market led world equity markets on the upside last week, and we are expecting for that trend to continue over the coming months.
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Morning Market Commentary & Charts
Asian and European financial markets, (currencies, equities and government bonds) were little changed as investors braced for the possibility of new quantitative easing measures from the European Central Bank (ECB). There’s a strong chance that tomorrow’s ECB announcement will boost Eurozone stocks, however not necessarily weaken the Euro further, as the parabolic rise of the $USD relative to most world currencies since June 2014 has been overdone in time and magnitude. The ECB move, in combination with the European-wide Juncker Plan, which will
bring an additional stimulus to particularly infrastructure projects in Europe, should be convincing investors to make further equities and bond investments into the Eurozone.
Morning Market Commentary & Weekly Charts
North American equity markets entered into a short-term corrective phase on December 29th. The corrective phase is expected to continue until end of the fourth quarter earnings report period (i.e. late January/early February). Thereafter, North American equity markets are expected to resume an intermediate uptrend as they normally do during a US Presidential Pre-election
year. We are expecting for equity markets around the world to be exceptionally volatile this week due to a series of economic/political news events.
Morning Market Commentary
In a shock move this morning, the Swiss central bank scrapped its minimum exchange rate of 1.20 Swiss francs a Euro, which was introduced four years ago
to protect Switzerland from the Eurozone debt crisis. The Eurozone’s trade surplus widened in November as exports rose, indicating that a weakening Euro is starting to provide a boost to the economy. The European Union’s statistics agency today announced the Eurozone recorded a surplus in its trade in goods with the rest of the world of EUR20 bn ($23.6 bn), up from EUR16.5 bn in the same month of 2013.
Morning Market Commentary & Weekly Charts
US Equities are extremely expensive compared to its global peers, and have been overweighed & overheld for a very long time by foreign investors. The fact that foreign ownership of US stocks is at an all-time high, totaling 16% in 2014, the highest in 69 years since such records have been kept, is of additional concern. For 2015, we are advising US investors to increase their foreign holdings, and reduce US equities exposure.
Morning Market Commentary & Weekly Charts: 2014 Final Words
The yield on the benchmark 10-year Treasury bond ended the year at 2.17%, exactly at our 2014 target price, and down substantially from where it started the year at 3.03%. Despite the fact that the Fed ended its quantitative easing program in October 2014, we do see the long end of the Treasury curve likely to move lower in 2015 on the back of weak global growth, and the fact that “the Fed is boxed in” consequently, and eventually will become more accommodative one more time.
Global Markets Strategy & Equities Outlook – Bullish on Japan & China
As you know we turned very bullish on Japan and China in September 2012, and have been advising to overweight allocations towards the Nikkei and the Shanghai Indices, as we recognized major turning points in those markets due to changes in government leadership and implicitly new and improved stimulus policies going into effect as of Q4 2012.
Market Commentary LTRO, EUR, GOLD & SILVER
We see the LTRO repayments likely to boost money-market rates, leading to more EUR/US$ strength in the near term. The EURO extended a gain versus the US$ to trade as high as EUR/US$1.3464, extending an 11-month high set earlier in the session. We maintain our Q1 price target of EUR/US$ 1.3850. Continue reading
Morning Market Commentary – European Mega Banks “Big Split”
Discussions have been going on for some time, in Berlin and, most of all, Brussels, to proceed to split up “Mega-Banks”. The European Commissioner for Internal Market and Services, Michel Barnier, a former French cabinet minister with snow-white hair, is the most feared of the Brussels commissioners in European financial centers. He is already responsible for more than 30 EU regulations decreeing how banks and other financial market players are to do business in the future.
Greek Myth(s)ology?
Mr. Trichet has an opportunity to help Greece to join the Modern Era. As we have been warning investors since November 2009 about the “Sovereign Risks” that would impact currencies, bonds and equities in 2010, we believe that now the risks seem to be fully taken into valuation accounts for the three asset classes.
CGI 2010 Global Markets Strategy & Equities Outlook and 50 Recommended Portfolio
The Year of Capital Preservation?