The World Financial Markets in Eight Charts

Equity, Commodity and High yield Currency Markets seem reluctant to test recent support levels. They are still trading way above lows of the last few months.

It's a vastly different story for the USD Index and increasingly, US Treasuries. As the USD steadily continues its trend of lower highs and lower lows, US Treasury markets seem to be striking multi-day lows. Perhaps soon, multi-week lows.

The chart below shows the explosion in the US Monetary Base. We think that this will eventually be reflected with a significant blowout in treasury yields and commodity prices. This is an image that dominates our outlook thinking at the moment.

The US Monetary Base (Bloomberg: ARDIMTBA:IND)

Equities

Continually we read bearish commentary. Is anyone actually shorting major indicies still? The last few months have produced really only one consistent pattern - higher highs and lower lows.

Even Bulls such as us had anticipated some form of pullback, but we are still waiting. Perhaps it might never come; then again...

Fixed Income

Government bond yields have been rising from the beginning of October. We have not seen any resistance levels of note breached, but the pattern is repeated across many of the G10 economies. So consistent is this that we now expect to see breakouts within the next few weeks, perhaps in a matter of days.

We are watching for the 4.0 level on the US 10yr. We are still rather surprised at how the junk bond market has held up. It suggests that the crowd still remains hungry for high yielding "assets".

Commodities

Commodity markets remain above key support levels.

We had expected commodity prices to increase much more rapidly than they have. Still, we continue to see Gold and Oil move steadily upwards. More encouraging for this view is the performance of inflation protected bonds relative to non inflation protected bonds. The Baltic shipping rate is also at the back of our minds.
Currencies

The recent chorus of "the USD is oversold" seems to have gone very quiet of late. We suspect that any short term USD longs will be exiting their positions over the next few days.

The USD Index continues to move down, making a series of lower lows and lower highs. Furthermore, it is still some way off any support worth noting (the next level of support lies at the 72 level). We have seen some weakness in the "carry trade" but this weakness has not come to anything more than retracement of strong gains made in early October. No long term support level or up trend line has been breached.

Still take note of the "carry trade" in your positions and have an exit strategy.

So, we we will be watching the Treasury market this week like a hawk because that is where we see major trend changes occurring.

Disclosure: Long VTI GWX DBC TBT UDN DBV SLV JNK.

Comments

[F. Bradeen:]

Are you assuming there is a correllation between TLT and JNK. I don't see any. Any comment on that?

Nov 09 07:11 AM

[geohjr:]

Great summary, very valuable for short term trading, thanks.

Nov 09 10:00 AM

[skwestorange:]

I am not sure what this author's basis is for expecting a trend change in treasuries this week. If it said in weeks, it is understandable because of the inability sustain imbalances in the system.

Nov 09 11:18 AM

[Daily Trading:]

Government paper (safe) v’s Commercial paper (riskier). If you need more help then perhaps the markets are not the place for you.


On Nov 09 07:11 AM F. Bradeen wrote:

> Are you assuming there is a correllation between TLT and JNK. I don't
> see any. Any comment on that?

Nov 09 05:00 PM