The Chart of the Week
The CBOE Volatility Index is back down to complacency levels…
A major moves are bound to happen in the US Dollar and the Chinese Yuan in the coming weeks.
The trigger for the Yuan will be announcements on the Trade War where apparently the negotiations have gone much further than the markets know and we expect a major announcement on currencies.
There could even be noises about a re-pegging of the Hong Kong Dollar.
The trigger for the US dollar advance will probably be a breakdown in Oil prices as that will send inflation collapsing and US real interest rates shooting up
DXY – US Dollar Index
EUR – Euro SELL
JPY – Japanese Yen STRONG SELL
CHF – Swiss Franc STRONG SELL
CNY – Chinese Yuan BUY
HKD – Hong Kong Dollar
RUB – Russian Ruble BUY
TRY – Turkish Lira SELL
Oil has finally reached our Short levels, even if it can still rise a bit more towards 68. The change of tack of Russia is a defining moment for the future of Oil.
It is still too early to BUY Gold and Silver but Platinum is delivering a massive BUY signal while Palladium confirmed the breakdown.
Copper is positive on the back of better economic news from China.
Coffee should fall more but Sugar and Soybeans are strong BUYS
CL1 – Crude Oil SELL. SHORT
XAU – Gold Don’t Buy Just Yet
XAG – Silver Don’t Buy Just Yet
XPT – Platinum STRONG BUY
XPD – Palladium SELL SHORT
HG1 – Copper BUY
KC1 – Coffee SELL
SB1 – Sugar STRONG BUY
S 1 – Soybeans
LB1 – Lumber SELL
We review the long term evolution of bonds yields round the world and the conclusion remains the same, there is little value in bonds globally as an asset class. There are trillion of Dollars of Bonds with negative yields in Japan and Germany.
Long term inflation risks are not priced in at all in Government bonds yield curves where 30 yer bonds barely pay 3 %
The massive increase in total corporate debt caused by ultra low interest rates is not priced in the paltry 6.11 % yield paid by High Yield corporate bonds and even less in the 3.79 % earning on Investment grade bonds.
All this to say that the next crisis will come from the bond markets, as was the case in the 4th quarter of 2018.
CT10 – US 10 Year Government Bonds
CT30 – US 30 year Government Bonds
Bloomberg Barclays US corporate Investment Grade Bond Yield : 3.79%
Bloomberg Barclays US Corporate High Yield Bond Yields : 6.11 %
JAPAN – 30 YEAR GOVERNMENT BONDS
GERMANY – 30 YEAR GOVERNMENT BONDS
CHINA – 30 YEAR GOVERNMENT BONDS
Major markets in America are reaching a tipping point while Emerging markets, China and Europe are positive. SELL Brazil and take profits on India, Viet Nam and New Zealand.
The Trillion Dollar question is whether we are going to see an EQUITY MELT-UP before a significant fall or a double top in the major indexes.
MXWO – MSCI World Index REDUCE
MXEF – MSCI Emerging Markets Index BUY
MXAP – MSCI Asia Pacific ALL COUNTRY Index BUY
USA – Dow Jones Industrial Index REDUCE
USA – Standard and Poor’s 500 REDUCE
USA – Nasdaq Composite Index REDUCE
USA – Russell 2000 Index REDUCE
Canada – TSX Index SELL
Mexico – MEXBOL Index BUY
Brazil – IBOV Index SELL
Europe – EUROSTOXX 50 Index BUY
UK – FT100 Index
Germany – DAX 30 Index STRONG BUY
France – CAC 40 Index BUY
The short term chart of the French CAC 40 Index could lead to conclude that investors should sell the market or at least take profits, but the longer term chart below shows that the break above the long term triangle and sustained testing of it to the downside points to a secular bull phase.
Switzerland – SMI Index
Short term REDUCE and Long Term BUY – Same as France with a lot of upside once the 9’600. barrier is cleared.
Sweden – OMX Index
The Netherlands – AEX Index REDUCE
Spain – IBEX 35 Index STRONG BUY
Italy – MIB 30 Index HOLD
Portugal – PSI 20 Index STRONG BUY
Greece – ASE Index STRONG BUY
Dubai – DFMGI BUY
After having called the top of the Dubai stock market to the day in 2014, we were amongst the very few analysts to call the bottom of the market in 2018. ( see BUY DUBAI ). The UAE economy has slowed down considerably and prices are down across the board from real estate to schooling to medical expenses, in line with the strategy of the Government to make the Uae a country where people settle for good. Dubai has become a mature economy with 4 to 5 % economic growth per annum and normal return on capitals instead of the crazy returns earned by investors over decades.
Saudi Arabia – TADAWUL Index BUY
Take some profits on China but stay long,
Reduce India and Vietnam
Sell Australia and New Zealand