Commentary:
Not much has changed fundamentally of late, so I thought it may be worthwhile to peruse the charts. Of course, one can interpret charts every which way to Sunday. But here’s what I see:
The S&P is back to the 20 week moving average that has been support since early 2013. A clean break lower suggest that we could visit the 50wk moving average region in the mid 1700’s:
Market participants may be hesitant to allocate money to equities due to the fact that we are back to 2007 valuation levels. (Fwd P/E in brown below) However, the trend of higher PE ratios remains intact. It is also worth noting that we had a similar pause in the PE trend last May, which was ultimately resolved late in the year. (purple box)
A very interesting movement, in my opinion, is happening at the long end of the yield curve. The 30y yield has broken below the 200 week moving average and the key 3.50% level. It may be just getting ready for a bounce, but…
The real yield component has staged a clear break below the 1.25% level that has held since last June…
And the 20 year monthly chart shows that the up move in 30y yields failed just as it hit strong resistance at the 4.0% level which was close to the 20y downward trend line and 100 month moving average:
This is interesting because a move in 30y risk free yields back to 3.0% (my base case, actually, but over the long term) would make other financial assets appear quite a bit cheaper. Not only other DM bonds, but also EM Bonds, (currently yielding 4.5%) equities, (6.7%) and real estate. (REITs yielding 4.5% and physical houses even more)
Despite my expectations for a further corrective move lower, USDJPY remains above the 101 level that has provided support all year. A break of that, however, could take us several figures lower easily, especially if US yields continue to move lower:
In EM FX space, USDCNH momentum has stalled and we saw the first weekly lower low since February. This may continue to provide a tailwind for other EM crosses:
Notable:
- US Consumer Sentiment rose to 82.6 vs 81 exp and 80 prev
- US Core PPI (Final Demand) increased to 1.4% vs 1.1% exp and prev.
- Turkey Current Account improved to -3.19Bn vs -3.0Bn exp and -4.9Bn prev
- Moody’s lowered the country’s outlook to negative
- JPM missed: Rev $23.86bn vs $24.5bn expected. EPS $1.28 versus $1.40 expected. GS: Almost the entire delta was attributable to revenue, with minor misses across the board adding up to 7 cents (2c NII, 5c fees). We attribute a fair portion of this to negative seasonal impact (weather, day count, etc.), but with reserve release slowing we expect the focus on the call to be around loan growth (-2% YoY), the capital markets revenue outlook (-14% YoY) and remaining cost leverage (-3% YoY on a core basis).
- WFC beat: $1.05 versus $0.97 expected. Net interest margin was 3.20% versus 3.23% expected.
- Fast Retailing earnings disappoint and full year guidance slashed. Management lowered its full-term consolidated operating profit guidance by ¥10.5 billion,
Upcoming Data:
- Mon: US Retail sales, RBA Minutes
- Tue: UK CPI, GermanyZEW, US Empire Mfg, CPI, NAHB Survey, NZ CPI, China GDP
- Wed: UK Employment, US Housing Starts, BoC, Yellen Speaks, Kuroda Speaks
- Thu: Canada CPI, Jobless Claims, Philly Fed,
- Fri: Good Friday,
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