AGA Chart Book – May 31, 2013

AGA Weekly Chartbook

1.    Global Financial Conditions

  • Global Financial Conditions deteriorated sharply this week
  • With global economic growth still rather weak, investors have responded negatively to the idea of less QE sooner
  • In Japan, volatility is increasing along with interest rates, sparking a global unwind of the Yen carry trade
  • Credit Spreads and S&P 500 Implied Volatility both increased this week, but remain below average
  • The VIX Index increased to 16.3, up from 13.99 last week
  • Macro Risk has been steadily increasing over the last 7 months
  • Bullish Individual Investors (AAII) outnumber Bearish Investors by 6%, down from a lofty 27% last week

2.    The Economy

  • Economic Data has been worse than expected over the last 12 weeks, but is now beginning to beat expectations
  • The divergence between economic data and 6 month S&P 500 returns has narrowed over the last two weeks
  • May Personal Income (+0.0%) and Personal Spending (-0.2%)
  • Consumer Confidence improved to 76.2, Durable Goods Orders (+3.3%), Industrial Production (-0.5%)

3.    Interest Rates and Fixed Income

  • US 10yr yields have rallied from 1.62% to 2.13% over the last five weeks, key resistance @ 2.10% and @ 2.35%
  • Investment Grade Bonds have retreated with Treasuries this month (testing January support); while spreads remain narrow (@1.59%)
  • High Yield Bonds have struggled this month (making lower highs and leading equities); credit spreads widened this week (@3.53%)

4.    Global Equity Markets

  • S&P 500 P/E multiple is currently 15.9, but is forecasted to contract to 13.3 by Q4 2014
  • Consensus earnings growth and cash flow growth for the next 12 months is 10.1% and -5.3% respectively
  • The medium-term uptrend in global equities remains intact
  • After making decisive new highs earlier this year, equity markets appear to be consolidating above support levels
  • Higher yielding equities have significantly underperformed this month
  • Emerging Market Equities continue to underperform Developed Market Equities
  • Emerging Market Currencies have weakened sharply this month, increasing selling pressure for EM equities and EM Bonds
  • Utilities and Telecom have been laggards this month, while Tech and Industrials have led
  • AGA Top Ranked Countries – MTD: #1 Japan: -7.35%, #2 Turkey: -5.34%, #3 Russia: -5.16%, #4 USA: +2.36%, #5 Thailand: -10.04%

5.    Major Currencies

  • The US Dollar Index consolidated this week, holding a recent breakout above a 4 year triangle pattern
  • The Global Carry Trade, driven by borrowing Yen, was unwound sharply this week
  • This month vs. USD:  AUD (-8.7%), MXN (-6.7%), Rand (-13.4%), Lira (-5.1%), Real (-7.5%), Baht (-2.0%)
  • MXN/USD @ 12.80, weakening from 12.34 two weeks ago
  • Australia, Mexico, and Brazil cut interest rates this month
  • The Mexican Central Bank is forecasted to ease rates again in September.

6.    Commodities

  • Commodities (an equally weighted basket) remain in a medium-term downtrend
  • Gold @ $1387/oz., up from $1384/oz. last week
  • The Gold-to-Gold Miners Ratio appears to be rolling over, improving the outlook for Gold Miners

Please feel free to forward any questions or suggestions.

Thanks,

James

disclosure: The opinions expressed in this Weekly Chart Book report are those of the author. The materials and commentary are strictly informational and should be used for research use only. This bulletin is not intended to provide investing or other advice or guidance with respect to the matters addressed in the bulletin. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions that comply with matters addressed in this bulletin. Charts and information used in this report are sourced from Bloomberg.

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