AGA Chart Book – June 7, 2013

AGA Weekly Chartbook

1.    Global Financial Conditions

  • Global Financial Conditions improved this week
  • The S&P 500 appears to have found near term support at the 50 day moving average and lower Bollinger band
  • With global economic growth still rather weak, investors have responded negatively to the idea of less QE sooner
  • High Yield Credit Spreads are widening
  • The VIX Index dropped to 15.1 from 16.3 last week
  • Macro Risk has been steadily increasing over the last 7 months
  • Bearish Individual Investors (AAII) now outnumber Bullish Investors by 9.4%

2.    The Economy

  • Economic Data (primarily labor and industrial sectors) has been worse than expected over the last 12 weeks
  • The divergence between economic data and 6 month S&P 500 returns remains, but  has narrowed over the last two weeks
  • May Government Employment Report (+175k jobs) and ADP Employment Report (+135k jobs)
  • May ISM Manufacturing came in at 49, below expectations of 51

3.    Interest Rates and Fixed Income

  • US 10yr yields have rallied sharply from 1.62% to 2.17% over the last six weeks, key resistance @ 2.10% and @ 2.35%
  • US 10yr yields tested and bounced off of support around 2.0% intraweek
  • Investment Grade Bonds have retreated with Treasuries this month (breaking January support); while spreads have widened slightly (@1.68%)
  • High Yield Bonds have struggled this month (making lower highs and diverging from equities); credit spreads widened smartly this week (@4.13%)

4.    Global Equity Markets

  • The medium-term uptrend in global equities remains intact
  • S&P 500 P/E multiple is currently 16, but is forecasted to contract to 13.4 by Q4 2014
  • Consensus earnings growth and cash flow growth for the next 12 months is 9.85% and -5.3% respectively
  • After making decisive new highs earlier this year, equity markets appear to be consolidating while holding primary support levels
  • Interest rate sensitive stocks have underperformed over the last 2 weeks
  • Emerging Market Equities continue to underperform Developed Market Equities
  • Emerging Market Currencies have weakened sharply, increasing selling pressure for EM equities and EM Bonds

5.    Major Currencies

  • The US Dollar Index sold off this week and is struggling to maintain recent gains vs. the Euro and Yen
  • The Global Carry Trade, driven by borrowing Yen, remains under pressure
  • MXN/USD @ 12.76, strengthening from 12.80 two weeks ago
  • USD/EUR @ 1.32, strengthening above 1.30 psychological resistance
  • 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 @ $1383/oz., down from $1387/oz. last week
  • Gold appears to be forming a double bottom with key support @ $1321
  • 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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