The Trump That Tweeted Wolf

The Trump That Tweeted Wolf Market sentiment is shifting. Tariffs on, tariffs off, tariffs delayed, new talks, talks cancelled, retaliation, no retaliation. Prior to this week, markets had large knee jerk reactions of 2, 3, even 4% moves to Trump’s tweets.  However, this week Trump’s tweets didn’t move the markets as much, the reactions appear to have become much more muted. Trump’s tactics remind us of the boy who cried wolf one too many times. TRI’s concern is that the big bad wolf is not just the trade war, but more importantly the downturn of the global business cycle. It appears many investors are ignoring the message economic indicators and asset prices are flashing across equity, interest rates, commodities and currencies. TRI believes the trade war is exacerbating the downturn in economic cycle, not its cause. Investors have now priced in much of the trade war drama and timing of resolution with a high uncertainty premium. In best case structure and timing of any resolution is far from clear, besides the fact the global supply chain is drastically changing.  Markets are now looking through the trade war challenges and will be focusing on economic growth prospects. Let’s see what the…

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Has the Business Cycle Trapped the Fed and the Bulls?

Has the Business Cycle Trapped the Fed and the Bulls? The US Federal Reserve’s first interest rate cut in 10 years sent risk assets pummelling as many global equity markets fell 3% or more. Despite all the central bank interventions, the business cycle is alive and well.  TRI believes the down leg of the business cycle is well underway, where the weakening global economy triggers cascading declines in output, employment, income and sales. Ultimately leading to re-pricing of risk assets lower while sovereign debt becomes a safe-haven play.  The US or shall we say global trade war is creating additional economic headwinds. TRI’s June 2019 scenario of a bear and then bull traps for investors is playing out well. The bear trap beat the bears up pretty good, as the S&P500 rallied over 10% out of the June daily and weekly cycle lows. Now the setup appears to be complete for bull trap, right as the Fed’s cut interest rates.  The Fed now appears to be trapped as well, as its credibility is in question, and lower interest rates are on the horizon. As of August 2, the S&P 500 is on a bearish daily and weekly cycle trend. This…

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Shots Fired! Is the Yield Curve About To Steepen?

Shots Fired! Is the Yield Curve About Steepen? Trouble for risk assets creeps closer as the flat yield curve (and in several terms inverted) begins to steepen with short-term rates falling faster than long-term rates.  The US 2-year yields just broke below the previous weekly cycle low of Dec 2018.  While the US 10-year and 30-year yields are basis points away on the verge of breaking down too. TRI expects the 2-year yields to fall faster than the longer dated treasury bonds, causing the yield curve to steepen over the next 12 months. Source: Tradingview.com Meanwhile in equity markets, the S&P 500 has managed to make new highs on more pronounced negative divergence with the RSI indicator and several other key markets.  As seen below, none of the NYSE Composite, Russell 2000, Emerging Markets or the World Ex-US ETF’s have been able to make new cycle highs.  This is very troublesome for TRI, as it signals major market weakness disguised behind the strength of US mega cap stocks. Source: Tradingview.com The historical US10Y – US2Y yield curve provides some very interesting information as we enter the next phase of the business cycle.  On 3 occasions - 2004, 2010-12 and 2014…

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Risks Are Rising, Breadth Is Falling

Risks Are Rising, Breadth is Falling The S&P 500 has rallied to the 2,800/80 resistance zone with an increasing number of negative divergences, hinting that the move from Dec 2019 is close to a finale.  The Canadian Financial sector is likely to correct greater than 15%, as it moves into the 4-year cycle low. The move down in Can 10-year rates is stretched and rates can consolidate or even have a counter-trend bounce higher as it digests recent price action below the 1.80% resistance level. Market Trends The S&P 500 daily cycle is in the final stage of topping, which will lead the topping of the weekly cycle as well. Can10yr rates triggered a daily sell signal, but this move into the daily cycle low should be counter-trend move before rates continue lower. USDCAD daily cycle is topping, while longer-term weekly and monthly cycles remain positive. TRI Cycle & Trend Signals* The TRI Cycle and Trend Signals are shown below.  These signals are as of market close on March 29, 2019.  Please see the TRI Overview document for further information. Source: Fieldhouse Capital Management Equity – Risks Are Rising, Breadth Is Falling The S&P 500 has rallied to the 2,800…

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Risk Assets Extending Higher. Are Negative Rates Ahead?

Risk Assets Extending Higher. Are Negative Rates Ahead? The S&P500 and risk assets continue to extend higher as the daily MACD has registered such high levels only twice before.  The S&P 500 can continue to extend higher as it bounces against overhead resistance in the 2,800 to 2,880 level. The improving sentiment and valuation multiples can be tied directly to the Federal Reserve’s capitulation on further policy rate hikes.  But TRI believes, the Federal Reserve does not control the business cycle, and the headwinds for slower growth into early 2020 cannot be undone merely by the Fed moving to the sidelines. TRI senses the powers that be are beginning to float trial balloons of what is likely coming down the pipeline in North America…  while TRI is likely early on this call of negative policy rates… don’t be surprised when you pay banks to hold your deposits. Market Trends The S&P 500 continues to push higher, even after a bite size daily cycle low of Feb 8. Indications are for higher prices, but caution is warranted as the easy part is behind us. If the daily cycle fails to make new highs above 2.05% and the daily cycle becomes left-translated,…

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