"It has certainly been a good day for index funds. Probably not so much for everyone else..." is the message from former fund manager and FX trader Richard Breslow, as investors' anxiety ahead of the weekend (in some assets) is breaking bears' hearts (for now).
Underweight investors watched one equity market after another open higher, and with sizable gaps that permitted no opportunity to trade. That can cause as much pain and anxiety as a market under pressure. At least when markets were getting hit, misery had its company. Take a look at the screens and all you see is good tidings. Portfolio managers trying to keep pace with their benchmarks are once again left contemplating whether to chase things higher or pray for the dip they didn’t buy last week.
Of course it wasn’t just stock traders whose prudence ahead of the G-20 didn’t pay off. CFTC data from last week showed that traders were busy adding to dollar longs and cutting Treasury shorts. In fact in the five-year sector, speculators slashed positions to be the least short in a year.
A lot of commentaries this morning say that risk appetite has returned to the markets. So you have to wonder why so many people aren’t feeling exactly chuffed.
Moreover, as Bloomberg's Cameron Crise quipped, the "he said, Xi said" comparison of statements offers little suggestion that there was much concrete agreement.
At this point, it’s hard to tell whether traders just want this year to be over or are hoping for more time. My guess is it is the former. Which is going to make this a very long few weeks, to be sure. Anyone who does decide they must chase the market, however, should be very selective in choosing what instruments to do it in.
Equities look pretty good. They are, however, getting into the vicinity of fairly meaningful resistance.
But still have room to run, if they want to. Not a simple choice from here, and they are unlikely to make things easy. I’d go back to watching the Russell 2000 for the simplest picture. Their futures, on the day, show the most potential compared to the other U.S. indexes for two-way risk from here. How they end the cash session will matter.
Bond yields are higher, but trade like they are damaged goods. I wouldn’t make too much out of the break of 3% on the 10-year Treasury. The lack of follow-through is telling.
Especially with thirty-year yields having stayed above their break-down yield. On the other hand they need to get up and out of here. They may need to wait until non-farm payrolls. Or, perhaps, they looked at the slate of Fed speakers and are being cautious.
The most interesting trades overnight were in Europe. Italian 10-year BTPs are at a pivot chart point at 3.15%. Given the positive news overnight, I would have expected them to have blown through this level. Of, perhaps greater significance was the liquidation of Euribor option positions which were designed to take advantage of ECB tightening in 2019. Something to consider if you plan on loving the euro.
The dollar is meant to be lower, but, actually, looks pretty good. Or at least, certainly doesn’t look bad. The index’s lows from the last four trading sessions look like a meaningful floor to watch. I wonder if analysts have been too quick in declaring its demise. I’m impressed that it is trying to get back above 97.
There is one unambiguous move taking place and that is in Asia.
Those markets look very strong. It may be the most popular theme you will see for the rest of the year. It certainly seems to have a lot of backers rooting it on