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Prior to joining The Daily Trading Report, I performed the roles of Chief Market Technician and Head Strategist for the Treasury and Proprietary Trading divisions of a major investment bank. I was also responsible for managing a global market neutral proprietary fund focusing on industrial,... More
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  • World Financial Markets in Eight Charts 0 comments
    Oct 26, 2009 01:04 AM | about stocks: VTI, GWX, EEM, DBC, SLV, DBV, TBT, JNK, UDN
    Capital continues to flow into high yield assets.

    That statement pretty much sums up the trends place across the global financial market asset classes;     equities, corporate bonds, and currencies.

    Last we saw US Treasuries finally showing the weakeness we have have suspected will arrive. The long dated US Treasury ETF "TLT" has now had three negative weeks with last week closing down 0.52%. Is this enough to signal a new downturn in US Treasuries?

    Well not quite. We would look to see TLT close below 90 before concluding, from a technical perspective at least, that the bear trend in US Treasuries that started in late December last year has been confirmed.

    Of interest is the breakdown in the correlation between US equity markets and US Treasuries. Usually when equity markets weaken US Treasuries rise, but this has not been the case as of late. Perhaps US Treasuries are now starting to follow the lead of commodity markets; TLT closing lower in the face of a reasonably strong USD! It is getting increasingly difficult to put forward a bullish case towards US Treasuries!

    To be honest the big "unknown" we have is the consequences of a fall in US Treasury prices (i.e. TLT). What will happen to markets if/when when) TLT makes a multi-week low (closes below 88)? Perhaps it could be a case of better the devil you know than the devil you don't.

    That being said, we think that the US Treasury market is the last piece of the jig-saw puzzle. Falling long dated US Treasuries should be confirming evidence for the rally in commodities (the inflation trade). We also think that falling US Treasuries are unlikely to be supportive for the USD. As far as equity markets go funds coming out of US Treasuries have to find a home and we think that home will be in equities, commodities, and offshore bonds (BWX). Of course let us see what transpires.

     Equities

    A slightly negative week for world equity markets but no loss of upward momentum in both the major market indices and the broad market.

     
     

    Treasuries

    The relative strength of Junk bonds compared to US Treasuries is telling. If there as a hint of risk aversion junk bonds would sell off without hesitation. Yet they made another multi-week high last week.

     
     

    Commodities

    Commodities across the board continue to break to multi-week highs in USD terms and now the big CRB index is within a few percent of breaking to a multi-week high in EURs and JPY. It seems that global inflation is coming sooner than the average economist and his analyst anticipate.

     
     

    Currencies

    We don't remember a time where we have had such linear behaviour in currency markets! It is just a trend traders dream right now, short the USD and long high yield currencies (relative to low yield). There is no loss of momentum that would suggest this yield seeking condition is under threat!

     

    So we go into this week continuing to be positioned for upside in equities, commodities, high yield currencies, corporate bonds, and downside in the USD Index and US Treasuries.

     Disclosure: Long VTI, GWX, EEM, DBC, SLV, DBV, TBT, JNK, UDN


    Themes: World Financial Markets Stocks: VTI, GWX, EEM, DBC, SLV, DBV, TBT, JNK, UDN
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  • $slx and $sea. Base metals prices continue to pick up along with coal prices. Prices of steel and shipping cos remain very cheap
    Jul 15, 2009
  • The Coal ETF (KOL), Coal gives you a long exposure to steel, energy, commodities, and a short exp to the USD, and a great inflation hedge.
    Jul 09, 2009
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