Saturday, 7 February 2015

Weekly Update - Week Ended 6 February 2015

Market Summary and Technical 
  • US equities still within  the broad range of the last few months
  • Some positive signs for further gains in equities 
    • HYG has held support so far
    • Market internals have improved
  • US dollar didn’t benefit from talk of faster than expected Fed rate hikes, which seems to indicate that risk is to the downside
[Market Summary]

 [Trend Watch]

[Selected Charts]

[Market Breadth] 

Readings and Trends 
  • Central Banks loosen monetary policy – Race to the Bottom?
    • People’s Bank of China cut the required reserve ratio for its banks 0.5 per cent (FT) (5 Feb 15); Official manufacturing PMI fell to 49.8 in January (FT) (1 Feb 15)
    • RBA cuts benchmark rate by 25 basis points to a record low of 2.25 per cent (FT) (3 Feb 15)
    • unexpected policy easing moves in Denmark, New Zealand and Singapore due to concerns over falling inflation
    • Negative bond yields in Europe - German bonds with maturities up to six years, as does Denmark. The Netherlands, Sweden and Austria all have negative yields on debt up to five years while Swiss bonds are now negative up to 13 years. Even Nestle bonds yields are negative. (FT) (3 Feb 15)
    • Will the Fed buck the trend?
      • US inflation trending away from the Fed’s target rate (Tim Duy) (2 Feb 15)
      • US growth slows to 2.6% in fourth quarter (FT)
  • Greece Drama
    • Right wing parties form government in Greece (FT)
    • Posturing going on as negotiations get underway
      • Greece proposes swapping outstanding debt for new growth-linked bonds (FT) (2 Feb 15)
      • ECB bans Greece debt as collateral for the European Central Bank’s cash (FT) (4 Feb 15)
    • Cam Hui believes there will be an eventual deal, with the debt being termed out (3 Feb 15)
    • Expect volatility ahead
  • US Equities
    • Barack Obama plans to tax overseas cash piles (FT) - Proposed 14 per cent “transition” tax on the estimated $2tn in earnings US companies have amassed overseas
    • Weak earnings for US bluechips due to strong US dollar (FT)
  • Global debt has risen since 2007 (FT)

Investment Implications and Opportunities 
  • The Greece situation bears watching as an exit from the EU could lead to contagion risk (FT) (1 Feb 15), though I believe the probability of Grexit is small at the moment
  • Low/negative interest rates seem here to stay
    • Deflation threatens to take hold
    • Deleveraging has yet to occur
    • This makes gold relatively more attractive (Peter Tenebrarum) (4 Feb 15)
  • If Obama’s proposed tax passes (which is not inconceivable), US equities and in particular bluechips can be expected to take a hit – something to monitor

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