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Key Global Macro Pivots
By Nic Lenoir of ICAP
Following our alert last Friday, we have reached some key support levels in US Fixed Income. Keep in mind the sell-off on Friday and Monday was driven by leveraged fast money accounts, and not real money flow. Therefore, the auctions this week will be key. From these levels, 10 year yields can move up maybe 10 to 15 bps more, but that is as far as we would see them going for now. A close below 114-16 in the future would clearly lead us to revise this outlook, but for now we have a bullish outlook. Everybody knows the supply argument, but nobody ever worries about demand. Following the same principle, Japan rates have failed to blow out higher for 20 years now... Not saying it cannot happen in the US, but higher rates would probably panic equities and in turn bring back a bid in fixed income. Baby boomers are going to be more and more conservative with their portfolio allocation from now on as they age and stop working, and every bump in equity and pick up in yield gives them a reason they don't already need to try and protect their capital from equity markets which have not done them any favors the past decade. A simple change of 5% of their portfolio allocation would be enough to absorb a lot more supply than we have coming. Worth keeping in mind. Without trading on such a big picture argument, the supports here will hold we believe.
Holding here for US Treasuries will also be facilitated if equities come under pressure. And talking about which, we are getting awfully close to the lower bollinger band on Vix. This is the single best technical indicator to pick out direction on the S&P. Should we gap lower and post a bullish below the bollinger in Vix, we would recommand getting short equities aggressively (I have highlighted the last 5 occurences on the chart... self explanatory).
Interestingly as we are close to key levels in equities and bonds, we find very interesting resistance in Copper and Gold. Copper is testing the former trend channel support now resistance (Copper can be sold against the 2Y Chile/US yield spread against which it is overvalued, despite correcting 20bps on the rate spread today!). Meanwhile Gold which we recommended buying at 1,080/1,090 is now on the neckline resistance of a potential inverted H&S at 1,135/1,136. We would advise to take profit on tactical positions, and keep a trailing stop below 1,114 on the core longs here.
Good luck trading,
Nic
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Copper is taking forever !!!
Delta, I hear you on Copper...that stupid LME/Shanghai Spread trade has created one heck of a bubble
Timing matters... which makes me so board in the interim
Delta, It has given me the time to learn the movements of copper....
You actually compare the 2 year of the Chilie bond/US bond to copper. I totally didn't know that? Do you have any articles or charts on that. BTW I noticed the break on the trend on copper too...if the world watches copper for global growth and it rolls...wonder if everything will follow?
Baby boomers may be 'retiring' less, much less than you think.
you are from the burgh? What area? The king of Regent Square here!
Short equities aggressively...?! Come on now....
Those running the melt up are looking at the charts too. About four weeks ago all my technicals said 'go short'. I suffered the worst hit in my entire trading life, so now I am inclined to sit back and watch this goosed bull run higher.
Its all about the USD, which is getting crushed against commodity CCYs, if the DXY breaks last weeks lows all USD assets will rally, stks, bonds, commods...sorry - think its just that simple.....
Yes, but the pattern doesn't hold up at all if you go back before March of last year. At that point, it breaks down completely. I do not trust this indicator.
Tightness of BB's often indicates breakout - - - This time too?
just like shorting the Nikkei 1,400 ticks ago...... ? Its guys like you who are fodder for those squeezing equities higher......
sometimes the right trade is "no trade"
you have been calling equities a short for God knows how long now and been 180 degrees wrong, I feel sorry for your clients who have undoubtedly burnt serious money following this advice
"Keep in mind the sell-off on Friday and Monday was driven by leveraged fast money accounts, and not real money flow. Therefore, the auctions this week will be key. From these levels, 10 year yields can move up maybe 10 to 15 bps more, but that is as far as we would see them going for now."
Nic, I agree with you regarding the auctions as they are the test for the demand that you see forthcoming. As for your prediction of rates stopping, it sounds to me like you're loosing some of your objectivity to favor your long positions. Projection is a dangerous game. Rates would have snapped back by now after the fast money left with all the Greek buzz. We've had a multi month consolidation for TNX & TYX. The factor you're overlooking is fiat defaults at some point in time. So, is it paper or bullion for you?
LOL...higher rates will bring a bid in fixed income?
No. They'll crush the sovereign selling them. We cannot afford to repay our debts at a 0% coupon, much less rising rates.
Rates blowing out means deflationary flight of capital. Look at the US's fiscal and funding picture. Would you be less or more inclined to lend them your money at a higher rate knowing that they had that much more interest to have to cough up?
Interest rates are balancing on a knife edge. Once they go up, they BLOW up. This is why I'm a QEx believer...there is no possible way the US can fund at higher rates; we're struggling enough as it is at these rockbottom coupons.
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