Global Macro Update
Equites & Bonds: Bearish newsletter advisors track by Investor Intelligence Survey, slightly decreased this week again. At the same time Volatility Index track by CBOE, remained at low 17 readings. US Treasury 30 Year Long Bond yields still refuse to rise in substantial manner despite a huge improvement in economic data and an equity market rally. Finally, the spread between Merrill Lynch High Yield Bonds and equivalent maturity US Treasury Notes, continue to narrow, dropping down to 6% this week. We are still in process of an improvement when it comes to the corporate credit market.
Currencies & Commodities: GLD fund flows, tracked by a monthly 4 week rolling average, continue to show inflows, however this week we experienced a 3 billion dollar outflow during Precious Metals panic sell off. Positioning on the US Dollar, tracked by the CFTC Commitment of Traders report, showed that investors are still slightly bullish on the currency. Positioning in the Commodities market showed that investors are are becoming very bullish on the asset class, with the rise in positions mainly attributed to Energy. Positioning in the Agricultural Commodities market increased towards a more neutral position this week.
Market Breadth Update
New Highs And Lows: The ratio between 52 Week New Highs and Lows, tracked by the NYSE data, showed that bulls remain firmly in control of the market trend. We do have a short term divergence, where equities keep moving higher on closing basis, while the 52 Week New Highs fail to follow through. Having said that, we have no significant or major divergences that usually signal a major market top just yet.
Trading Above 200 MA: The Percentage of Stocks Trading Above 200 MA, tracked by the S&P data, also showed that bulls remain firmly in control of the market trend. We have no significant or major divergences that usually signal a major market top just yet.
Sector Breadth: Overall market health as well as the current trend, can best be determined by following sector components trading above various moving averages. As we can see in the table above, last week was a major change in short term breadth, where overwhelming majority of sectors now have less than 50% of their components above the 10 day moving average. This could be a serious signal that majority of the market is now ready for a slight correction in near term.
Very Nice! I think the bond market is not buying the economic reports and some of the very recent ones are showing declines from prior readings. The employment report will be huge and I expect it to disappoint the market based on Gallup polling of the current employment situation, not seasonally adjusted.
ReplyDeleteHere is the Mid Feb Gallup Polling results.
ReplyDeletehttp://www.gallup.com/poll/152753/Unemployment-Increases-Mid-February.aspx
newsletter bears are no where near 20% or lower coinciding with previous peaks. neither are credit spreads, despite new highs in s&p. finally, bonds refuse to move as mepitre noted above. what now?
ReplyDeletemepitre - very interesting chart from Gallup. It is completely different from the official employment data. I also definitely think that Bonds are not rising because they believe more European problems are to come, which means yields have less to do with economic data like Citigroup Economic Surprise Index.
ReplyDeleteAnonymous - what now? Maybe a correction. *cheeky smile*
Tiho. The gallup poll should and does give a good indication of what to expect from the Employment Report and is actually a more accurate reading of what is going on imho. The takeaway is that we should expect the employment report for Feb to show a deterioration in the job market relative to last months reading.
ReplyDeleteFrom Gallup: "The U.S. unemployment rate, as measured by Gallup without seasonal adjustment, is 9.0% in mid-February, up from 8.6% for January. The mid-month reading normally reflects what the U.S. government reports for the entire month, and is up from 8.3% in mid-January."
Tiho. Re Bonds whatever the reason there is the potential for them to go quite a bit lower still...time will tell though. If they can't rise on economic data then what will they do when the next downturn hits?
ReplyDeletehttp://advisorperspectives.com/dshort/guest/Dominic-Cimino-120302-30-year-treasury-yields.php
I actually completely agree with you. My expectations at the start of the year were for a risk asset recovery and a safe haven sell off. Having said that, I have now noticed that Treasury Bond Yields refuse to rise, so when the situation deteriorates... and it will deteriorate... the yields could go lower.
ReplyDeleteMaybe the bond market is real smart and is following personal consumption. Here's the sequence: jobs growth follows consumer spending growth, not the other way around." Job losses follow consumer spending weakness, not the other way around.
ReplyDelete"Leading up to a recession, and even until about 5 months after a recession starts, the evidence from personal consumption growth swamps the evidence from payroll employment growth. The growth rate of disposable income also provides better leading evidence of recession risk than payroll growth." From John Hussman.
http://advisorperspectives.com/dshort/updates/PCE-Real-Year-over.php
http://advisorperspectives.com/dshort/updates/DPI-Monthly-Update.php
mepitre - you bring up some very good points. There is an old saying that the bond market reads slow downs earlier than equity markets. Having said that, I do not think the Bond market is "real smart" here. I'd just say that the bond market is in a bubble... a major bubble. And just like Nasdaq in 1998/1999/2000, that bubble can go on for awhile, until it bursts!
ReplyDeleteAfter 30 years of a bond bull market, the burst is coming. It is just a matter of when, not if...
Tiho, time permitting I am going to post information on world wide debt levels including personal debt...it is unreal! Debt is the major cause of a slow economy. The bond market is reacting to this huge debt overhang that is slowing things down.
ReplyDeleteOne Continuous Slump
"The actualization of a recession in 2012 will be especially difficult for the average American in that we have not really recovered from the previous recession ending in 2009. This obviously is not a typical business cycle; rather, we may be in the midst of what Harvard historian Niall Ferguson titled a “slight depression.” The reason for this analysis is that real personal income less transfer payments, one of the four coincident indicators the NBER uses to determine recessions, has recovered off its recessionary low in 2009, but is still about a half trillion dollars below where it was in 2008. Industrial production is still off 5% from its peak and no higher than in 2005. Full time employment is at the same level as in May 2000, despite a 28 million person increase in population and a 11.4 million rise in the labor force. Real median income stood at $51,800 in 2007, but for the first time ever has declined in this recovery and now stands at an estimated $49,400, a 6.4% drop from the previous peak. These statistics painfully point out the adjustment process in an overleveraged economy.
Treasury Market
The long end of the Treasury market witnessed a decline in yields from 4.34% at the beginning of 2011 to 2.89% at the end of the year. To most, this 35% return was a surprise as there was near unanimity of opinion that rates would rise in connection with the higher real economic growth rate that was expected for 2011. Similarly, faster growth seems to be embedded in most rate expectations for 2012, and concomitantly expectations are for interest rates to rise. If recessionary conditions appear in 2012, as we expect, then even lower long-term interest rates will be recorded."
http://www.advisorperspectives.com/commentaries/hois_11112.php
I definitely agree. Debt is the drag on GDP growth and until we write some of that debt off, things will improve in a secular fashion. In other words, we will not have a sustained bull market like we did from 1982 until 2000, but rather just cyclical recoveries, until another recession and debt panic comes around again.
ReplyDelete