Global Strategy Report 15 February US Bonds

Transcription

1 Global Strategy Report 15 February 2016 US Bonds Since our issue of Road Map 2016: Death Of The Bull in December 2015 markets have largely unfolded in keeping with our expectafons. Global equifes have collapsed aggressively, flight to safety has seen US bond yields retest record lows, emerging markets have dropped sharply, bullish US dollar trend has reversed and gold has returned to be back in favour. Where to now? A technical bounce from oversold levels. As the charts to the lep of US bonds (10yrs and 30yrs), there has been a capitulafon in risk off or flight to safety. The reversal in yields in conjuncfon with a bexerthan-expected retail sales data on Friday, has lep behind a tail in technical terms. The MACD indicator and RelaFve Strength Index have reached equivalent levels to that seen at the prior record lows of Jan/Feb As a result our big suggesfon from December 2015 to be long Treasuries has now played out. While we sfll see another follow-up risk off, flight to safety trade that will likely make new lows, for the Fme being there is lixle if no profit to be made being long Treasuries. In line with this we will also see a confnued rebound in global equifes, the US dollar and a retreat in gold. Produced by Gregory Tolpigin Head of Proprietary Trading and Strategy 1

2 US EquiCes S&P 500 The S&P 500 has found support once more in the crucial support zone of 1830/1813 that incorporates the January 2016 and October 2014 lows. Given the ability to hold this massive support zone a second Fme together with the exhausfon seen in the risk off themafc, further gains to 1890/1910 is looked for. UlFmately we see this rally producing another shorfng opportunity most likely in mid to late March as the factors that turned us bearish in December sfll remain (for the first Fme since the Euro debt crisis in 2011) We expect markets to rest here for a few days at most and then slice through this support zone. Next support is Furthermore, this is not just a technical correcfon. The underlying strength of the global economy is extremely weak and the widespread push into riskier assets driven by central QE is now reversing and requires a lengthy adjustment process. The target for the next downleg will be 1738, with an ulfmate downside target for 2016 of As the overall medium to long-term view is bearish, short-term long trades need to be viewed as just that short-term. Bear market rallies are both very violent and strong but they are open short-lived so investors need to stay acfve. 2

3 ASX 200 Each Fme the ASX 200 registers a new mulf-year low, it reverses and rallies points. The latest move through 4800 late last week almost reached 4700 before buying interest began to step in. This reflects the ongoing buy the dip mentality of the local market, but ulfmately one that grows in losses with each new low. Given Friday s S&P 500 move and in keeping with recent price acfon a retest of the 4950/5000 zone is likely. However, we see limited potenfal to surpass this resistance zone, without a broader based global equity rally and a significant low being made in oil/base metals. Short-term rebounds in resources provide nimble traders with opportunifes however our ongoing concerns over the local banking sector will be a drag on the index. The Australian bourse will confnue to be a stock picking exercise while our longer-term focus is for the ASX 200 to work its way down to 4500 (dominated by weakness in financials). ReporFng season will allow us to reassess our stock selecfon but at this stage we remain comfortable with our long selecfon of SMN, TWE, CAR, CVT, AJM, AHG 3

4 USD/YEN US dollar weakness has been completely correlated with the demise of equifes and with some stability/shortterm rebound occurring there the same can be expected for the US dollar. Weakness in the US dollar in 2016 despite negafve rates in Japan and Europe have been enfrely based on the US dollar side of the equafon. US dollar strength over 2014/2015 had been driven by expectafons of QE tapering, eventually interest rate increases and the health of the US economy not the movement lower in interest rates into negafve territory by the BOJ or the ECB. Hence, when signs of weakness appeared in US economic data and the S&P 500, the flows into the US dollar reversed. While we see an eventual move to new mulf-year lows for equifes later in 2016, the US dollar is less clear. APer a mulf-year period of US dollar strength, currency trends are likely to follow that of equifes in 2015 sideways, direcfonless trend. As a result focus will need to turn to capturing shorterterm volaflity as opposed to longer-term trends. We see USD/YEN working its way back up to the /50 zone aper complefng a nice base under 113 last week. The breach of 113 has officially reversed the momentum and we would expect the Nikkei 225 to also experience a solid retracement towards 16,500. For the downside to resume we would need to see an inifal move back under 113, but ulfmately a break of Support: 1) ) ) Resistance: 1) )114.29/34 3)

5 EUR/USD Similar comments apply to the EURO with further weakness expected in line with a US equity rebound. EURO is tesfng trendline support at which when broken could lead to a swip decline into the / zone. UlFmately for this downward probe we see the EURO reaching aper which addifonal weakness is likely to be tough. A great deal of trading acfon in the Euro in January occurred in the 1.10/1.08 zone and to move through this area quickly will be difficult without some new news. As a result looking for a 2014-style trend to new lows in the EURO is likely to be fruitless at this point and why we strongly suggest squaring shorts on approach of Heavy mulf-year resistance exists across 1.14/1.15 zone and we would use any rallies towards that point as broad selling opportunifes. Support: 1) ) )1.1120/80 Resistance: 1) ) )

6 Gold Gold has overstretched itself in the short-term with room for a sharp reversal to the downside. While we have turned more posifve on gold over the medium-term, in line with our caufous/negafve outlook for equifes, the immediate outlook is for gold to fall back below $1200. A combinafon of flight to safety, short covering and Mark Cuban s bullish gold comments that triggered a massive spike in gold opfons volume, has created a short-term peak. This is within the price acfon typically seen in gold at short-term highs where rallies culminate into a flurry of buying and overbought condifons. The RSI indicator across daily Fmeframes is well above 80 while the MACD is above levels seen at the height of the prior peak in Jan The major difference between the current peak in gold and that of peaks in recent years is that no new low will be made. Instead we see strong buying emerging in the $1180/1160 zone with that creafng the next buying opportunity. Similar outlook applies to silver with a retreat back into $15.00/14.80 before the next upleg can resume. Support: 1) )1200 3)1180/60 Resistance: 1)1264 2)1286 3)1308 6