The Swiss team latest report has concluded that wave 5 is underway though near term we are tactically toppish which is likely to get resolved in August to allow for the rally to resume into Sept.
Some strategic issues remain with this bull market for now and need to get resolved. Surely their resolution tells us clearly what are likely to be the beta stocks and sectors therefore inc banking, tech, and transports. As yet many sectors are still failing to confirm and we still have little from the international indexes to confirm the US risk picture. The cyclical stocks need to take over the leadership of this market, rates need to rise which would be supportive of the finance sectors and monetary action needs to flow from the BOJ and ECB to debase their currencies for their nominal markets to join US risk into a bull market territory.
On the fx side the euro is persistently holding on to this 1.10 area vs the US$. Currencies unlike stocks can drift in narrow ranges for some time so this is fine. There is no price technical evidence to change position as yet away from the US$. Europe’s markets are still within secular bear markets and still within cyclical bear markets. Its not a pretty picture for euro risk in spite of the US remaining within a secular and now resumption of a cyclical bull market for risk. The divergence is immense and represents a golden era in fact for US wealth. Who would have imagined back in 2008 this would be the case. Japan looks better in terms of ending her secular bear market but cyclically no break out yet though the BOJ and Abe looks set to reestablish the recent trend with a sea of liquidity any day.
For now all eyes to the FED. US markets wise the betas are clear and the entries are likely to show in August. Euro markets, either liquidity from the Ecb will drive up asset prices across sectors but particularly cyclical sectors and the euro down. All eyes as to how they resolve the euro banking issues not helped at all by euro negative rates.
Looking ahead if we are into a wave 5 for US risk then this can produce a blow off top for cyclical sectors inc commodities. Inflation should pick up, some signs and rates should run up a little. Therefore the under performers from here should be the recent over performing sectors of utilities and other defensive sectors inc pharma and commercial property.
As a macro comment here note today’s consumer durables which remained very weak as does capex spending by large corporates in general. Text book theory and economic history shows us that inflation is always a monetary matter but it made much worse when inflation of the money supply occurs alongside weak investment in capex. We can see from the data that “dm” productivity is weakening at a time when money supply, from policy is ever expanding. Its very clear that the seeds for super inflation are being laid everyday and it is likely to produce a stagflationary outcome for economies due to this phenomena above. Stagflation is still inflation ie nominal prices rise albeit as living standards fall. For financial sectors and also corporates with heavy debt profiles this is usually is a positive environment.
Anyway without delay here the Swiss team latest comments and analysis. Please be aware they will take their summer vacation and the next report will be on the 16th of August.
And here Fitzpatrick:
Give or take Fitzpatrick’s scenario appears to be in play. Oil has weaker than he forecast and rates have not risen in the way he expected but give or take he has be fairly accurate with his projections.
And here a great report from LC pretty much in line with the Swiss team.
There Dax chart is identical to my own and doubtless many market allocators. To imagine policy makers inc Draghi doesn’t have the same chart on his desk would be wrong in my view. As policy makers are seeking to direct capital they will beware of these levels and charts.
Here MS on the fx
More to come
Rich