AGA Chart Book – June 14, 2013

AGA Weekly Chartbook

1.       Global Financial Conditions

  • Global Financial Conditions have deteriorated over this month; Macro Risk and Investor Stress is increasing
  • The S&P 500 has tested and held near-term support at the 50 day moving average
  • With global economic growth still rather weak, investors have responded negatively to the idea of “tapering” QE
  • Interest rate sensitive equities (high dividend payers) bounced from oversold levels this week, retracing a portion of MTD losses
  • High Yield and Investment Grade Credit Spreads are widening
  • The VIX Index (implied S&P 500 volatility) increased to 17.2 from 15.1 last week
  • Bearish Individual Investors (AAII) outnumber Bullish Investors by 1.6%, down from 9.4% last week

2.       The Economy

  • The Bernanke-Hawk “Tapering” Watch:

·         5 year forward inflation expectations have dropped substantially over the last two weeks, moving from 2.75% to 2.4%

·         US Consumer Prices, Personal Consumption Expenditures, and Personal Income Growth are all decelerating – YoY

·         The M2 Velocity of Money and US Loans-to-Deposits continue to slow

·         30 year Mortgage Rates have spiked to 18 month highs @ 4.29%

·         Industrial Production, ISM Manufacturing, and Leading Economic Indicators are slowing

·         The Unemployment Rate and Loan Delinquencies remain moderate

  • 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 this month

3.       Interest Rates and Fixed Income

  • After rallying sharply from 1.62% to 2.17%, US 10yr yields have moderated to 2.13%, key resistance @ 2.20% and @ 2.40%
  • Investment Grade and High Yield Bonds consolidated this week
  • Investment Grade and High Yield credit spreads continue to widen, currently at 1.74% and 4.20%, respectively

4.       Global Equity Markets

  • The medium-term uptrend in global equities remains intact
  • S&P 500 P/E multiple is currently 15.9, but is forecasted to contract to 13.2 by Q4 2014
  • Consensus earnings growth and cash flow growth for the next 12 months is 10.5% and -5.5%, respectively
  • After making decisive new highs earlier this year, US equity markets appear to be consolidating while holding primary support levels
  • Emerging Market Currencies have weakened sharply, increasing selling pressure for EM Equities and EM Bonds

5.       Major Currencies

  • The US Dollar Index sold off again this week and is struggling to maintain YTD gains vs. the Euro and Yen
  • The Global Carry Trade, driven by borrowing in Yen, remains under pressure as rate and currency volatility is increasing
  • MXN/USD @ 12.71, strengthening from 12.76 last week
  • USD/EUR @ 1.335, strengthening from 1.32 last week

6.       Commodities

  • Commodities (an equally weighted basket) remain in a cyclical downtrend
  • Gold @ $1383/oz., down from $1387/oz. last week; Gold is attempting to form a double bottom with key support @ $1321
  • Crude Oil has rallied to $97.85/barrel

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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