We ended last week in Equity markets with no clear swing-formation in North America, and at best the initial stages of a swing-low formation in the rest of the world (ACWX, EFA, EEM), writes Ziad Jasani Monday.
View my Market Strategy Session roday
Recorded: June 25, 11 am EDT
Duration: 1 hour
As the U.S. dollar (USD) started to soften on UK’s monetary policy statement (June 21), Neutral-To-Positive Eurozone Manufacturing Data (June 22) and weaker than consensus-estimated US Manufacturing Data (June 22), we picked up swing-low trades in currency and commodity markets while enjoying our continued exposure to Canada (TSX).
However, with the Nasdaq & Small-Caps breaking short-term up-trends (June 22) we maintained a cautious approach towards equity risk, despite the Dow, Industrials & Materials perking-up on China’s capital injections and reserve ratio cuts.
Our thesis for this week leans more positive than negative for equities, but we need some clear swing-low behavior in U.S. markets to compliment the rest of the world, along with a continued weakening of the USD, a mild rise in U.S. Treasury yields (10-year), and a stronger rise in Commodities (DBC), all while Emerging Market Bonds (EMB) and Hi-Yield Bonds (JNK) remain in stable ranges above support structures.
This may seem like a tall-order but the USD, U.S. Treasury yields, Commodities and Bonds are setup to cooperate to start, and economic data-flow is rather light to start the week.
The keys to unlock equity-upside will be positive news on the U.S.-China trade war and whether buyers can overcome Technology tax issues and potentially softer consumer confidence weighing down Small-Caps.
Without the aforementioned, we can easily see the S&P 500 (SPX) back down -1.5% to its 50-day average (2,715) and the TSX down - 1% to -2.1%.
The “positives” to start the week are OPEC likely only increasing production by ~600K barrels, and China injecting more capital into their banks and further cutting their reserve ratios.
But that’s not going to be quite enough to start the week risk-on. We have cleaner lines of sight on our Currency & Commodity trades and are looking to build on them.
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