Bylov: Inter-Markets Trading View

Jan Bylov, chief analyst at Nordea Markets, is a "rare specie" among analysts, as he is looking himself at all asset classes and uses inter-market approach in analyzing the markets. He writes in the summary today:

Equities – Global consistency

All major stock indices as well as in Asia and LatAm continues to trade above the horror of November 2008. So is this by coincidence or does such an observation carry a message? Well, if we put our faith into the hands of the prominent delegates at the Davos meeting (UK PM aside) we are doomed and the observation obviously means nothing. However, at current “unprecedented” times we are probably much better off relying on common sense based on how extreme cheap money and huge fiscal packages will influence our animal spirits! With this in mind I do find it encouraging to observe that few asset classes/instruments trade at new “bear” extremes advocating that the terrible economics are well discounted, and that the unprecedented global public intervention should be given the benefit of the doubt. So I’ll sit here waiting for a new selling climax or other well-known signals advocating that odds for buying S&P500 are attractive once again.

Bonds – No sign of Fed bidding

Most bond prices continue to edge lower with little hope of new food from ECB tomorrow and no sign Fed having begun to bid US treasuries. Still, with Friday’s US job report lurking in the background activity should remain cautious. Overall, I maintain that a game of poker is being played with Fed with the attempt to pressure Fed to reveal its true strategy regarding Fed’s willingness to buy long US bonds to counter the enormous supply! Consequently, clear upside price dynamics remain necessary to disprove the bears as the dominating theme seems to have switched from 1) dovish central banks putting a hand behind long bonds in support of cheap house financing and attractive prices to issue bonds… towards 2) the perception that we are facing a major bond bubble due to supply fear. I remain sidelined for now.

Commodities – Just sideways

Nothing really new. Aside from the still strong precious metals little appears to be going on following the best recovery in commodities during December/early January. This recovery argues that the general commodity collapse has come to a halt, and I expect prolonged range trading ahead of the next major directional price move. Further, I maintain that the transient investment theme of “global deflation and economic recession” very well could have been discounted by the price extremes experienced during late 2008.

Currencies – EUR/USD bears losing momentum

Monday this week EUR/USD traded at “new lows” suggesting a new attack at the important October/November lows at 1.2330 created when global financial fear was extreme. However, the bear raid failed and EUR/USD returned back into its recent range, and interestingly this is the first real evidence that the 2009 downtrend in EUR/USD is losing momentum. So is anything new cooking out there in light of no major asset classes/instruments trading at new “bear” extremes? Anything is possible, but with CEE currencies continuing to plunge I demand more evidence before any consideration to go with a recovery in EUR/USD… with Europe most likely the weakest link among the majors. Elsewhere, I’m mostly interested in participating in a potential squeeze of long JPY positions as seen in the significant speculative long JPY futures position published in the CoT report, but still I need a real trading signal to attempt once again.

Consider as a probability ...