Hi guys, I hope all here in the northern hemisphere are enjoying the fine summer weather a little.

Certainly volatility has picked up a little here and the relentless higher highs in tech and wider SP500 is taking a breather. The US$ is down now strongly for the year and commodities are finally starting to react a little, especially the softs as the guys comment on. A weaker US$ is generally good for global liquidity. The correlation of the US equities to Europe and Asia has been high during this weakness with Asia out performing for relative strength from nik225 to hangseng.

We have to trust the prices we see on our screens and certainly there are signs the reflation trade is back on the table here. Prices are starting to tell us rates have broken out and the bear mkt in bonds has started (report below). That commodities have likely based and financials, brokers and other correlated sectors are showing the way.

Yet much of this price action seems built on central bank jaw boning rather than anything more. And if risk pricing is correct how can the market be pricing reits in the way it is (ie at a very high prices) and obviously pricing many ten yr and beyond rates at the level they are? Its also interesting that for all the talk of higher rates down track from central banks recently the 2yr rates, even across periphery Europe remain in negative territory.  German bunds 7yr remain at negative interest rates. If reflation is the order of the day the bond markets (and therefore related asset classes) are mispriced.

Its therefore logical to me that following the recent melt up in equity asset markets we have some chop and retracement here. The data and news flow has not supported the melt up and many asset class prices are even point in the wrong direction for the reflation trade. The market is looking for a reason for a continuation. We have mixed signals for now in spite of central bank chat but the underlying tech picture remains very bullish. Note the transports in the US as just one example of the tech strength.

Here the swiss team’s latest commentary:


And here another commentary, this time by the US team, ground up tech on US equities:


And here Fitzpatrick from last week:


And here RBC picking up on fx and bonds:


Trade wise the gbp needs to move on vs the usd and euro. If she doesn’t much lower levels beckon. I am in the trade and will add if price supports.

All the best guys



1 Star2 Stars3 Stars4 Stars5 Stars (14 votes, average: 5.00 out of 5)