Friday Chart Book
I am sending the chart book out a bit earlier than usual as I will be in the air by the time markets close for a quite memorable August. I will be travelling over the next two weeks, but do not worry; the usual weekly publications will be rolled out as before. I am also finishing up a thought piece, which I have coined the “Bondfire”. I will be discussing the notion of hyperinflation and helicopter money and what this all means for bonds going forward. In addition, I am just finishing up another storyline from my institutional past, which I hope will be both entertaining and educational in similar proportions.
As we close out the month, I can not help but wonder whether anything has changed. Bond yields are lower but have traded in a range after rallying hard in the first two trading days of the month, while equities briefly looked into the depths of drawdowns to bounce close back to the highs. The USD, meanwhile, has seen a beating throughout the month, with only Latam currencies underperforming while Asian currencies are ripping.
A lot of the moves are just being driven by large position unwinds following Yen’s wrecking ball move over the past few weeks. Now, we have a bond market that’s pricing in a relatively aggressive and front-loaded path in rates while equities are closing in on their highs. Some might say both assets can’t be right, but I would argue that the priced pro-active monetary policy approach gives equities the confidence that the Fed will do its job and protect the expansion. Powell said so himself. The put, therefore, is back and firmly struck at the current unemployment rate. Growth, meanwhile, is still looking robust as most are tracking still solid 4-4.5% nominal growth. Where is the recession? It’s certainly not here. Gold, meanwhile, has tried breaking out and is at its highs. It had a great advance just on the day Kamala presented her economic policies, which seemed a bit worrying. Gold has also performed tremendously well compared to other commodities.
How long can this relationship between the stocks and bonds last? The window can be a few months at least, as data will likely keep bonds trading between a slowing and recessionary regime. If data were to turn higher, I could see bond markets dialling back rate cut expectations and easily sending the 10-year yield back above 4.25%. My charts confirm the long equity and bond outlook at the current juncture. My longer-term bond and equity/liquidity strategy are both long and have done very well this year so far. Still, I feel uneasy. Call it a hunch. Just observing market reaction and looking at the possibilities ahead, I wonder how quickly we could unravel economically should we see a larger-than-usual equity drawdown. Given the high degree of concentration in indices, a sudden reorientation would cause quite a bit of pain, which the Fed wouldn’t be able to stop, regardless of how many rate cuts they would dish out. Reflexivity works both ways and way quicker on the way down. A weakening stock market would hurt confidence, and consumer spending would quickly evaporate, jobs would be cut, yes, the usual recessionary playbook. It’s not impossible and obviously hard to predict. I just can sense that conditions are there for this to potentially unravel, but it would be foolish to pre-empt it. I will obviously keep you all posted on my observations and what I look out for, but in short, if bonds price things so aggressively ahead of an imminent rate-cutting cycle, I take note. The December pivot, in comparison, was simply too early, and bonds were just too aggressively priced following the Fed meeting, which had to be re-adjusted. This time, it will be different.
By now, most of you will be familiar with the models and their signals. If not, please study the guide I have published.
The full book of 250+ charts covers the whole asset spectrum from equities, bonds, commodities, FX, and Crypto to give you the most extensive view. On average, it will generally provide a good 5-10 set-ups on a weekly basis.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts for a fee. If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Let’s also read my friend Macro D’s recent thoughts on markets before engaging our scanning eyes across the multitude of charts that I have updated for you below.