Another strong week rolls by. We have strong seasonal winds here blowing us towards a positive end of year for risk, us$ risk included. But in the coming 3 weeks US$ risk may have lost its alpha crown with international risk, currency adjusted likely to be provide the out performance due to mean reversion catch up.
Looking at the instrument tech detail.
Of the most notable moves in international risk are finally a breakout by European Banks (EXX1) and also European major indexes in Euros. In US$ the move is even stronger and shows very strong momentum (fez). Commodity weighted European risk indexes like EMVEUA (etf) out performing. We can also see the same out performance of commodity themes across US$ indexes like XOP (oil services) which has also broken out following a long distribution phase. Asia continues to under perform though the nik225 is broadly in line, under performance in US$ although in the last week finally we see a US$ adjusted turn. I say all this in case you are involved or have been involved in carrying JPY and or Euros and Cads Sgds, etc. There is some evidence that dollar adjusted international risk is finally back on the agenda of allocators. This is likely to be meaningful if correct. US risk has strongly out performed international risk for an extended period now and we therefore likely to see some close of this gap, mean reversion, at least to some degree. Precious metals vs all other commodities have the negative alpha in the post trump period. This, at the least, needs to mean revert also as said last week. Defensives themes (IDU) (Reits etc) and bonds should at the least provide a powerful bounce. (For disclosure almost all the above are trades i am involved in, except any play on bonds at present).
With 3 weeks to go its looking like 2016 will go down as a very strong year for my own book (albeit measured in euros) even with the disappointment for the precious metals. Given we started the year with a great expectation of weakness its a surprise indeed and forms Fitzpatrick’s uber bullish “outside year”. Lets keep taking what we are given and not have too much of an expectation of what the medium and longer term future holds. The only asset class i exclusively allocate with cash and still refuse to play from a technical perspective are the precious metals. At some point this strat will be correct i hope!
Without the delay here the reports. Note no Swiss report next week.
Fitzpatrick:
SC:
And here scotia with their cftc reading.. The tide turned on usd jpy. (ie post a lull the pair should run).
All the best for now..
Rich